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Tom Kelly
Tom Kelly
The Real Estate Adviser

July 16, 1999

Are too many millionaires ruining the area housing

By TOM KELLY
The Real Estate Advisor

ISSAQUAH -- Cash talks. And, in the Puget Sound area -- where high technology is the fastest growing industry -- it's shouting.

Just look at the annual Street of Dreams where expensive homes are sold before they are even finished.

Add to that mix an estimated $5 billion in stock options that will be exercised in the next five years, the stories of thirtysomethings paying cash for $750,000-and-up homes --totally bypassing the bank -- will continue to flourish.

Younger singles and couples who started out years ago (that could mean months, even days, in cyberland) working long hours for high-tech companies now want to enjoy their lives and/or start a family. The stocks they bought at a discount they are now golden. Those paper incentives they received as a signing bonus have been turned into green, spendable reality. While not all of that money is going into real estate, it has been the primary, obvious first target.

Sure, there have been high-end buyers in the Puget Sound region that have not been affiliated with stocks and bonds, but the size of the group is not even close to the tech players. The continual flow of professional athletes (let's hope Ken Griffey, Jr., retains at least a part-time presence at his Sammamish Plaeau home around the corner from Jay Buhner) always raises eyebrows. The latest was Seahawk coach Mike Holmgren's $2,775,000 purchase of a Mercer Island westside waterfront home that includes a terrific exercise room and complete guest house.

Along with the housing flow, must come the ebb. Former Seahawk coach Dennis Erickson, an Everett native, recently sold his Eastside residence for $750,000 and headed to Corvallis to head up the Oregon State football program. Curt Warner, probably the most popular Seahawk running back, sold his home in Grossmont Estates near Issaquah for $825,000 and moved to the Vancouver-Portland area, and former Hawk defender Kenny Easley's 8,709-square-foot abode, set on four acres with with an indoor lap pool, can be obtained for a cool $2.2 million.

Jack Sikma, who spearheaded the Seattle SuperSonics championship team in 1979, has his Evergreen Point waterfront home listed for nearly $6 million and former Mariner catcher Dave Valle's $1.8 million estate up the hill in Cantergrove is also for sale.

But even pro ballplayers, for the most part, at one time had to scratch to find enough cash to rent a basement apartment. What is curious, interesting and awkward at the same time is that the Stock Option Factor (SOF) absolutely bypasses the traditional housing ladder. The bottom line had always been the bottom rung -- if folks couldn't afford to get in the door of their first home, they obviously could forget about moving up to a bigger and better second home.

This produced a "house-of-cards" effect. If there's no first-time buying, there will be no second-time buying, thereby decreasing the demand -- and value -- of "move-up" homes.

While there is a definite affordability problem in the Puget Sound area, it's not as acute as it is in some other parts of the country. There are two basic reasons for this:

  1. Our moderately priced homes have appreciated at a consistent, if not healthy, pace. This is stretching household incomes more than before, but not to an unreachable level. Home prices haven't jumped 20 percent in one year, nor have they depreciated 10 percent.

    This gives average consumers a better chance to start, yet does not terribly enhance their chances of moving up. Huge swings in appreciation-depreciation hurt at least one segment of the market.

  2. The second and third rungs of the housing ladder are not in jeopardy here because buyers have had an easier time -- so far -- in taking the first step. Modest appreciation is helping homeowners accrue equity faster, bringing the second step closer.

The SOF, though, has created its own rung -- or plateau -- that began on the Sammamish Plateau and has now spread throughout Puget Sound. This group needs no introductory housing programs, other than a crash course in how to get along with neighbors who may have more than one child. They are lured by the creativity of existing homes, yet often desire merely its location. Then, they'll demolish the structure (commonly known as "scrape") and build the home they want.

The sale of $1 million homes has jumped 53 percent in Bellevue and 40 percent in Seattle from 1997 to 1998. More than a thousand homes sold at prices between $500,000 and $999,000 last year and there are predictions that number could double in 1999. High-end, cash buyers are also surfacing in Kitsap, Snohomish, Skagit, Pierce and Thurston counties and the pace is expected to pick up.

The word "exercise" has taken on an entirely different denotation in housing. It now means to pick up the phone and tell a broker to sell.

Perhaps that's what Mike Holmgren does from his new exercise room.



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