Microsoft Archives » Larry & Kathy Reichle

Remote work may trigger a ‘suburban boom’ in real estate

May 29, 2020 by Kathy Reichle Leave a Comment

SEATTLE – With large tech companies like Amazon and Microsoft extending their work-from-home policies until the fall due to the COVID-19 pandemic, economists are predicting that real estate trends might shift and cause a “suburban boom” in the housing market.

In a newly released survey, the Seattle-based Zillow Group found that 75% of Americans working from home due to COVID-19 would prefer to telecommute at least half of the time once the pandemic subsides, and 66% said they would consider moving if their job allowed them to continue telecommuting.

These trends in the job market are leading economists to predict that post-pandemic housing preferences may move away from dense metropolitan areas due to the virus and more lenient work-from-home situations.

“Moving away from the central core has traditionally offered affordability at the cost of your time and gas money. Relaxing those costs by working remotely could mean more households choose those larger homes farther out, easing price pressure on urban and inner suburban areas,” said Zillow senior principal economist, Skylar Olsen.

As people reconsider housing options in conjunction with remote work, the amount of space desired by home shoppers will also shift. Zillow predicts that larger homes, especially those with extra rooms or home offices, will be in high demand.

Additionally, the growing affordability crisis in cities may also have a major impact on the suburban real estate surge. But proximity to a metropolitan center is still crucial. Redfin CEO Glenn Kelman predicted that people will move to nearby suburban areas like Tacoma to be able to make office visits in Seattle when necessary.

“More permissive policies around remote work and a rising wariness about close quarters will likely accelerate that trend,” Kelman said in a May earnings call. “More people will leave San Francisco, New York and even Seattle, some for nearby towns like Sacramento and Tacoma that are close enough to support a weekly office visit, others for a completely remote life in Charleston, Boise, Bozeman or Madison.”

According to the Pew Research Center, only 7% of American workers had the option to telecommute as a benefit prior to the COVID-19 pandemic although over 40% of jobs could be performed remotely. With more employers seeing that remote work is a possibility, this gap may narrow once the pandemic is over.

However, a shift to living further out of the metropolitan core is not without its drawbacks, which is why Olsen and other economists do not predict that the market surge will extend to more rural areas.

“However, [moving way from cities] means they’d also be moving farther from a wider variety of restaurants, shops, yoga studios and art galleries,” said Olsen. “Given the value many place on access to such amenities, we’re not talking about the rise of the rural homesteader on a large scale. Future growth under broader remote work would still favor suburban communities or secondary cities that offer those amenities along with more spacious homes and larger lots.”

by Callie Craighead | SeattlePI.com

How Best To Invest In Real Estate In The Northwest

May 7, 2019 by Kathy Reichle Leave a Comment

The Northwest is one of the fastest-growing parts of the country, with home prices soaring as the supply of housing hasn’t kept up with demand.

Investing in such a rapidly changing environment is a challenge because we know from experience that such surges in growth never last. At some point demand will ebb, supply will increase, and prices (and rents) will level off—or even fall.

The area around Seattle has seen the most spectacular growth because of the expansion of the information technology sector—Amazon, Microsoft and many others. This sector now provides 6% of all local jobs, grew 7% in the past year, and provides 23% of local wages because of the high average annual pay, over $250,000.

Oregon and Idaho have had growth on a scale that’s only smaller in comparison, but that leads to similar problems for investors.

The best way to assess these markets is to first see where they are in the price cycle—that is, are they already over-priced? Is there a greater risk that prices will at some point actually come down? If so, your investment will need to be defensive as much as an opportunity for good returns. The table shows that in Seattle, Salem, Bend and Boise, prices are already more than 25% higher than the ‘income’ price. This means they’re over-priced. Another half dozen markets are in the 15% to 25% range, and at the rate prices increased in the past year they’ll soon be there as well.

Over-Priced Markets

If you plan to buy and hold a rental property for the next 10 or 20 years, you don’t care too much what will happen with home prices in the next five years—even if they do go down. Eventually they recover, though the recession showed that it can take a long time. Your greater concern is to have renters in your property if the local economy does go downhill. This means you need to invest in a price range where there are lots of renters right now, what we can call the “sweet spot.” This varies from market to market and from zip code to zip code, so you must do some homework with Census data.

You want to avoid high-end rentals in over-priced markets, because they’re most vulnerable in a down economy; don’t just buy a single-family home and rent it out at a high rate unless you also plan to flip it in the next few years. Instead, split a single-family into several rental units, which will take time and money but will give you better returns in the long run; or you can invest in apartments.

The table shows that the job situation in Seattle is very strong—jobs up 3.5% in the past year—so if you invest now it’s probably not yet the peak of the market. In Boise, on the other hand, job growth is now slower than six months ago and the very sharp increase in prices points toward a riskier situation.

Moderate Markets

Portland is a former high-growth market that may come to a soft landing. Three years ago home prices were rising 12% a year, last year just 5%. With jobs still increasing over 2% a year, which means demand continues to grow, it’s most likely that prices will stabilize but will not fall. In these conditions, investors must be very careful about the price they’re willing to pay for a property and shouldn’t count on appreciation to add to their return. Rents, on the other hand, can be expected to rise slowly, along with income.

Kennewick is a good bet for investors, even though it’s a smaller market and therefore more volatile. Job growth has been good, home prices are close to the “income” price, demand is strong, and home prices are low enough compared to rents that single-family homes can be rented out directly.

Low-Growth Markets

Spokane, Idaho Falls, Billings, Cheyenne—despite the occasional surge in home prices, demand in these markets is driven by job growth, which has been low. This means that the location of your rental property is even more important than usual. You’ll want to be near medical centers, colleges, government offices, revived downtown areas. And because there probably hasn’t been much recent construction of attractive properties, it makes sense to buy inexpensive homes to upgrade into a higher rental/sales bracket.

Wrap-Up

You can successfully invest in any market, but your strategy may be different in each one. The Northwest has a lot of markets that are tricky right now because of a surge in prices; that just means you need to prepare more for the downside. Dynamic markets are a challenge, but that’s often where the best opportunities can be found.

Eastside mayors look at potential projects for Microsoft investment

February 20, 2019 by Kathy Reichle Leave a Comment

Microsoft recently dedicated $500 million toward creating and preserving affordable housing.

On Jan. 16, Microsoft announced it would put $500 million toward creating and preserving affordable housing in the Puget Sound region in an attempt to curb the housing crisis.

About $225 million will subsidize middle income housing in Bellevue, Kirkland, Redmond, Issaquah, Renton and Sammamish. Another $250 million will go toward low-income housing across King County, while the remaining amount will go to combat homelessness.

“The dollar figure itself was absolutely stunning,” said Bellevue Mayor John Chelminiak. “We need to be willing to take the opportunity that’s been offered by Microsoft and we need to do that obviously in conjunction with working with our citizens.”

Many have attributed the housing shortage and homelessness crises to the influx of high-paying tech jobs to the area. Median area income hasn’t kept pace with rising housing costs, a problem that has forced low- and middle-income workers to live farther away from their jobs.

According to the Redmond-based technology company, a gap in available housing has caused housing prices to surge 96 percent in the past eight years, making the greater Seattle area the sixth most expensive region in the United States.

“This is a great effort to come up with some ways to reduce that gap and get units that are more affordable,” Chelminiak said.

“The majority of the people who work downtown, don’t live downtown, don’t live in Kirkland,” said Kirkland Mayor Penny Sweet.

This has added to traffic congestion while delivering a blow to teachers, nurses, first responders and those in service industries. Rising rents have also added to the homelessness crisis.

“I’m happy they’re aware of their positive impacts and their more challenging impacts to our community, and are willing to work on both,” Redmond Mayor John Marchione said of Microsoft.

Marchione said that though he doesn’t know the details of how Microsoft will administer this program, “having more capital money for housing is going to be very helpful in creating more supply.”

“Starter homes just don’t exist right now in our inventory,” said Issaquah Mayor Mary Lou Pauly. “We’re missing exactly that type of housing project that Microsoft is talking about.”

Many who earn a middle income, including those who work for the cities and school districts, can’t afford a home on the Eastside in the current market, though cities are hoping to change that.

“It’s our vision that everyone who works in Redmond should have the chance to live in Redmond,” Marchione said.

Low-income housing is “generally considered people who make 80 percent of the median income in King County,” Marchione said, and there are a number of programs that target that level. But there are no programs to build housing in the middle range, which is from 80-120 percent of the median income. This “middle income” is a focus of Microsoft’s investment.

There are a number of ways for cities to help increase housing stock, Marchione said, including making surplus land available for subsidized developments, lowering the cost of impact fees for affordable housing projects or processing permits faster, which saves developers time and money.

“It benefits our community in return because it allows people who work as school teachers or graphic artists or firefighters to buy in the community [where] they live,” Marchione said.

Mayors of nine cities — including Bellevue, Kirkland, Redmond, Issaquah, Renton, Sammamish, Auburn, Kent and Federal Way — have pledged to help by changing zoning to increase housing in some areas, providing public land near transit stations, streamlining permitting processes and fees and creating tax incentives for developers to build more housing.

While there are no details of how Microsoft will specifically invest funding into Eastside development, both Bellevue and Kirkland are emphasizing transit-oriented affordable housing projects as potential targets.

Bellevue is currently in the neighborhood planning process for Northwest and Northeast Bellevue. Microsoft’s investment is a large focus in the discussion around the process and Chelminiak said he hopes the city can seize the opportunity to work toward more affordable housing options.

“I don’t know exactly how Microsoft will be making its decision on where to invest,” Chelminiak said. “I think there is [an affordable housing] crisis and I think this is a perfect discussion point to have with people around the availability of housing and how this might be able to be used within those two neighborhood areas to provide more housing.”

The Kirkland City Council has placed an emphasis on housing for 2019, Sweet said, and everyone is looking at different projects that could benefit from this investment.

“The city of Kirkland is really committed to this and I think our citizens know it,” Sweet said. “The next part of the story is going to be fascinating to be a part of…We’re talking about it every time we sit down.”

Pauly said she has a specific project in mind in Issaquah, and that for working with Microsoft, “the timing couldn’t be better for us.”

The city entered into a partnership with Spectrum Development Group and King County Housing Authority to create a proposed mixed-use, transit-oriented development on a prime opportunity site near downtown. Pauly hopes to have a contract in front of the Issaquah City Council this year.

“This is exactly the kind of project where we’re going to need some money to close the gap,” she said. “We’ll definitely be watching eagerly to see how Microsoft is planning to manage the money and invest in projects, because we think we have one that is shovel ready.”

Pauly said that Issaquah, and other Eastside cities that are planning for the opening of Sound Transit’s light rail, could use more affordable and what she calls “entry-level” housing.

“Why it’s so important to Issaquah to get it is that if we’re going to put that much density on the valley floor and we’re going to have light rail, we have to reduce car trips, and one of the ways to do that is to have the people who work in town live in town,” she said. “Transportation and development are completely integrated and part of the solution to our transportation issues will be to have a housing strategy that marries the two together.”

More information on the announcement can be found at https://blogs.microsoft.com/.