Is Seattle the New San Francisco?

San Francisco, CA, USA

The online journal Curbed recently published an article titled, “According to Wall Street Journal, ‘Seattle is the new San Francisco'”. Curbed’s article was a little bit disingenuous because the WSJ article was not really about asserting that Seattle had become the new San Francisco, it was about how hot the real estate market in Seattle is and how difficult it is to compete and buy a home. More specifically, the WSJ article was about how people in Seattle will probably need a jumbo mortgage to buy a home.

One of my clients saw my FB post and made a comment about the fact that affordability or, more specifically unaffordability, is nothing new in Seattle. They stated that a 3 br home in Magnolia (a neighborhood in Seattle), “would have been expensive even five years ago“. That might be true and it offers a great opportunity to do a micro-analysis of the Seattle real estate market’s affordability. Let’s take a look. I know, my title implies that I am going to compare Seattle to San Francisco but I don’t have great granular data for San Francisco. As a real estate broker in Seattle, I have great data on Seattle though and can really analyze my client’s assertion about one neighborhood here.

What did a home cost in Magnolia in 2011? It varied from month-to-month and the data are skewed by the fact that there are some very large, fantastic homes with breath taking views of the Sound in Magnolia, and there are also some very modest little homes down in the valley. The median home price in Magnolia changed by as much as $100,000 from one month to the next in 2011. However, if we add up the monthly medians and divide by the number of months we get an average that is probably a good representation of what a home in Magnolia cost in 2011: $577,000. Applying the same methodology to the data we have for 2016 gives a very different price tag for a home in Magnolia: $896,000. That’s not a typo, homes appreciated in price by 55% in those five years (in fairness, that appreciation was more exponential than linear). By comparison, the national median home price in 2011 was $190,000 and by 2016 it had reached $232,000; a more modest total appreciation of about 22%.

Big price tags and percentage appreciation is one way of digesting this data but perhaps a more usable way is to think of it in terms of a monthly mortgage*:

In 2011, if a person bought a home in Magnolia for $577,000 and put 20% down on a 30 year loan they would owe $461,000. According to a popular online mortgage calculator, their monthly payment would be $2,480.

In 2016, if a person bought a home in Magnolia for $896,000 and put 20% down on a 30 year loan they would owe $717,000. According to the same mortgage calculator, they would have a monthly payment of $3,800.

One reasonable way to answer the question about whether it was expensive back in 2011 is to look into the WSJ’s assertion that a Seattle buyer needs a jumbo loan now.

A jumbo loan, also known as a “non-conforming loan”, is a loan that exceeds the limit that Fannie Mae or Freddy Mac will guarantee. Most home loans in this country are pretty quickly sold off to investors in the secondary market with a guarantee against default from those quasi-governmental organizations. Those conforming loans are easy to sell off because they are not risky from an investor’s point of view. If the loan defaults, the investor will be made whole. A person might write their monthly check to Wells Fargo or BofA, but the banks in most instances have already been reimbursed for the actual loan and are just servicing the loan by collecting the monthly payments and sending out statements. A jumbo loan has to have a different investor/buyer that has a higher appetite for risk because it won’t come with a guarantee against default. As a result, the interest rates are higher and lenders might require a higher loan-to-value ratio (larger down payment). The limits for conforming loans (non-jumbo) change every year and by geographic region. A jumbo loan in Detroit in 2016 is anything over $417,000, whereas a jumbo loan in Seattle today is anything over $540,000.

The WSJ’s assertion is that today a Seattle buyer probably needs a jumbo loan and that that is different from prior years. In our Magnolia example, the assertion is probably correct. Our hypothetical 2011 buyer got a loan for $461,000 and in that year the limit for conforming loans in Seattle was $506,000. The hypothetical 2016 magnolia buyer was getting a loan for $717,000 and this year’s Seattle limit is $540,000, meaning she has to get a jumbo loan.

So, would it have been expensive in 2011 to buy a home in Magnolia? I don’t know. It’s certainly all relative but I can guess that most of the country would consider a monthly mortgage payment of $2,480 to be fairly expensive. I think my client is right that home buying in Magnolia was an expensive proposition in 2011. I also think that the WSJ is right that most home buyers in Seattle today would probably need a jumbo mortgage. As for the idea that Seattle is the new San Francisco, that feels like a good topic for my next post.

*Overly simplified, but consistent for both examples. My calculations do not acknowledge any changes in interest rates or the complexities of buying points or financing-in closing costs or other such activities. It is also worth noting that I have clients that routinely get loans with as little as 5% down. Also, this is purely a hypothetical example and by no means is an offer for financing.

Affordable Housing

Not in my Backyard! Arson & Affordable Housing in Seattle

In the wee hours of last Thursday morning someone set a new construction house on fire in my neighborhood of Maple Leaf near Greenlake. The fire completely consumed the construction site and destroyed the two adjacent homes. The Seattle Fire Department has determined that the blaze was arson.

Fire in Maple Leaf

In fairness, we don’t know what motivated this person to light this fire, but this neighborhood (like many in Seattle) is experiencing rapid change in the form of new construction, density and skyrocketing housing costs. In many ways this new construction house that was burned to the ground is sort of emblematic of all of those concerns. The house was enormous, probably 3,000 square feet when finished and was sitting on a normal lot of about 4,000 square feet. It was outsized relative to the smaller homes in the neighborhood and it was probably going to go on the market at over 1 million dollars. The last four new construction houses in this neighborhood sold for 1.09-1.3 million each. The last three townhouses sold for over $500,000. These prices don’t represent affordable housing, but then again not everything is supposed to be or should be “affordable”.

fire2The Maple Leaf neighborhood was an eclectic demographic mix of upper blue collar, managerial classes and academics (it’s near UW) for years. I’ve heard it said that the typical Maple Leaf resident has a twenty year old Volvo in the driveway with a Dennis Kucinich bumper sticker. I’ve seen that Volvo while walking my dog but I also see a lot of pick-up trucks and, now, BMWs, Lexus SUVs and other luxury cars. Things are changing and that change is exclusive in nature and determined by money. If you can’t afford million dollar homes you’re excluded and I’m absolutely certain that that can be infuriating if this is your neighborhood; if you defined what it meant to be the Maple Leaf neighborhood and now you have someone in a Tesla swooping in and taking your parking spot at Cloud City. Change is hard and change you can’t participate in is harder.



South Lake Union!

I was driving by the Amazon jungle along Mercer St in South Lake Union this morning and saw the new Allen Institute building. Wow, it’s beautiful. I know it sounds ridiculous to get really excited about an office building but here’s the deal: I was a history major in school and loved the view of history through the lens of architecture. Every historical period has unique art, literature, science, politics and architecture and it goes without saying that one period builds on the accomplishments of the previous one(s). Rarely, do we mean that in a literal sense, actually building something new physically on top of the old. Paul Allen’s Vulcan Real Estate has done just that on Mercer Street.


There was a beautiful 1920s era Ford Dealership building at Westlake and Mercer. It had an intricate terra cotta  tile facade and a beautiful wall of windows. The problem was that it was just over one story tall. The forest of construction cranes in that part of Seattle is proof positive that there is an enormous amount of development and investment  there and it only goes in one direction, up, multiple stories up.

The original historical building was painstakingly disassembled, boxed up and stored off-site and then re-assembled as the front of the new building. The new building is set-back far enough that if you are standing right at street-level, it looks like you are in front of a beautifully restored 1920s era building.


Cheers to the Allen Institute and Vulcan for figuring out a way to build their new modern, glass-facade structure on the sturdy, elegant shoulders of this early commercial building. Looks great!