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Seattle is a supply-constrained market with high barriers to entry, and high land and construction costs.  Seattle's population includes a higher percentage of college graduates than any other city in the United States, which is directly reflected in the local economy.  Employment is expected to grow at about twice the national rate for the next two years, pushing office, apartment and condominium values higher.

Seattle is the number 7 apartment market in the nation for 2007, as rated by NAI.  (up eight places from 2006).

Seattle is the number 1 office market in the nation, as rated by ULI/Pricewaterhouse Coopers.

Downtown

It is nearly impossible to find investment properties in the CBD.  Adjacent to Seattle Center (Space Needle), the Bill and Melinda Gates Foundation is preparing to build their headquarters, which will be a new 600,000 sqft facility on large manicured grounds.  Paul Allen's South Lake Union project (south tip of Lake Union) will concentrate on biotechnology, which many see as a boon for the city.  Mayor Greg Nickels says on his Web site, "It could be the equivalent of another Microsoft in our economy."  The South Lake Union area is developing a heavy health-care presence, including the renowned Fred Hutchinson Cancer Research Center and Merck & Co.'s Rosetta Inpharmatics LLC subsidiary.  The University of Washington School of Medicine, the largest public medical school recipient of federal research grants, is putting a second campus in the neighborhood.  Boeing, south of downtown and north in Everett, has logged over a $Trillion in orders, as of June, 2007.

It's no secret that the Seattle market is hot.  Rents are on the rise and Seattle's condominium market continues to thrive.  From 2000 - 2003, Seattle's recession left renters with options.  2004 brought the beginning of the recovery, and from 2005 to the present over 100,000 jobs were created.  Apartment and office demand has strengthened and rents are rising.

University of Washington District

The University neighborhood ("U District") is ranked number 1 in apartment occupancy for Seattle and the entire Puget Sound Tri-County Region in the April 2007 Dupre+Scott Vacancy Report, with an incredible 0.8% vacancy rate.

The University of Washington has remained the top nationwide recipient of federal research dollars since 1984, with 41,000 faculty and staff and 38,000 students.  In fiscal year ending June, 2007 UW has passed the $1 billion mark in attracting money to fuel research.  The University of Washington has been instrumental in launching approximately 170 businesses over the past 20 years, including Immunex, Lumera Corp, Microvision, Micronics, and Zymogenics.

The strong and diversified local economy is bolstered by Seattle's key industries:  Manufacturing and Maritime, Biotechnology, Information and Communications Technology, Healthcare, Smart Energy, Sustainable Building, Film, and Music.  All these industries are within minutes of the U District, and interrelate closely with the University of Washington.

Housing Market Forecast

PMI Mortgage Insurance Co. released their U.S. Market Risk Index on 19 June, 2007, which shows that Seattle has a 34.3 percent chance of lower prices in two years -- the 25th-highest risk and just under the population-weighted average of 34.6 percent.  "This bodes well for the market there, in addition to the fact that Seattle has relatively really good affordability ... and a solid employment market," said LaVaughn Henry, director of economic analysis for PMI.

The PMI report put the risk of price declines in the next two years above 50 percent in 15 areas, including six metro areas in California and five in Florida -- two states that saw rapid price run-ups in recent years.  Among the highest-risk areas:  Riverside, Calif., at 65.2 percent; Phoenix, 64.6 percent; Las Vegas, 61.4 percent; and West Palm Beach, Calif., 60.7 percent.  The index predicts a less than one in 10 chance of declines in markets such as Dallas, Houston and Indianapolis.  Pittsburgh is the safest, with just a 6.4 percent risk.

PMI's chief risk officer, Mark Milner, wrote in the report, "What the markets with the greatest risk of decline have in common is a history of price volatility: rapidly rising rates of price appreciation above the long-term average followed by a recent sharp slowdown in the rate of appreciation.  Seattle ranked 18th for price volatility, with a higher rank meaning more volatility.

The likelihood of price declines in Seattle in the next two years, while low, is higher than it was six months and a year ago, although new changes in PMI's model (to better account for volatility) make comparisons less valid.  The metro area's chance of declines was 16.7 percent six months ago, putting it 32nd among the top 50 areas, and 10.9 percent a year ago, good for 33rd place.

Seattle's low vacancy rate coupled with high housing prices, indicate housing demand beyond supply.  The main constraining factor is wages sufficient to support continuous price increases.

PMI bases its calculations on price appreciation data from the Office of Federal Housing Enterprise Oversight, along with mortgage prices, labor market trends and housing demand in each market.


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