Seattle real estate market

Why Invest in a Hot Real Estate Market?


By Kyle Mylius | Director of Investor Relations and Strategy | Green Canopy

Part one of this two-part series highlighted why now is the time to use business as a force for good?

In the last several months, investors have asked about the prudence of investing in a “hot” Pacific Northwest real estate market — a market that has experienced significant home price appreciation since 2013, with Seattle seeing an average 20% increase in the last year alone.
Green Canopy's response is emphatic. A multi-faceted housing crisis has created a compelling financial, environmental and social investment opportunity. Not just now, but for several years to follow. Understanding the market fundamentals and deciding how best to manage the inevitable risks is essential to any sound investment strategy — as a developer, as an investor, and as community leaders.
"It’s essential for investment success that we recognize the condition of the market and decide on our actions accordingly." — 
Howard Marks, The Most Important Thing: Uncommon Sense for the Thoughtful Investor

Howard Marks is one of the most successful investors of our generation, known for being an astute observer and risk assessor. Marks strategizes with the understanding that regardless of the economic cycle, there will always be risks with investing — and pockets of opportunity are also ever present. Those who take a contrarian view, seeking out less-obvious and more-manageable risk exposures, with smart and flexible investment structures, are rewarded by opportunities unforeseen and even derided by most.
“The trend is your friend” is a common investor phrase and useful tool for evaluating where to invest, or not. A visible trend in the Pacific Northwest is that the inventory of homes for sale remains at an all-time low while demand continues to be high. This is evidenced in several ways including the number of days homes are on the market before being sold and the persistent growth in home prices throughout our region.

At the same time, the Pacific Northwest continues to attract more highly-paid workers looking to relocate. This isn’t just the Amazonians, but many of the major Silicon Valley companies whose employees can sell their homes for a high price in California and buy at a lower price in the PNW. While Seattle’s median home price exceeded $750,000 recently, the market is a relative bargain compared to median home prices in neighboring West Coast cities: San Francisco ($1,200,000) and Vancouver B.C. (US $2,400,000). Portland has also experienced significant appreciation over the last five years, though the median home price is substantially lower,  $440,000 according to Redfin.
If demand growth begins to slow, there are a number of factors that will cause gross demand for homes to continue outpacing gross supply. For example, home supply tends to lag behind demand as it typically takes 12–15 months to acquire, build, and sell residential development projects. And in Seattle, the number of new construction home sales has not come close to the number in demand, even with the amount of population growth multi-family apartments and condos are absorbing.


Data Source: NWMLS and U.S.Census Data 
Public agencies are working to adjust policies and support the high volume of new construction permitting requests, but bottlenecks still remain. Lenders continue to be conservative in extending credit against real estate. The construction industry across the U.S. has only recovered half of the skilled labor lost during the great recession — and many homeowners in the PNW are unwilling to sell. Despite having substantial home equity, PNW homeowners are not motivated enough to sell when they will be faced with the high costs to switch and the lack of options to upgrade.
The regional housing market imbalance of supply and demand may not be able to achieve equilibrium in the next year, or two or three. But it will eventually. Investment and development strategies focused on the single-family residential market must be structured to nimbly capitalize on the near term upward pricing trend and well-positioned to respond to inevitable cyclical shifts further down the road.

The Dialog of Infill Communities


Mission Metrics: Case Studies on Impact Part 2
Written By: Aaron Fairchild, CEO of Green Canopy

Green Canopy’s neighborhood engagement started with our first home in West Seattle in 2010. We painted the home a shade of green that our neighbors rejected immediately and publicly via social media. We were taken aback. This certainly wasn’t the “impact” that we had hoped for. Our nascent team had just begun working together with a mission to inspire and this quickly became a moment to listen and learn.  We invited all of our neighbors to meet onsite and tour the construction project and vote on the color to repaint the home. This was our first opportunity to talk to the community about our mission, gather feedback and learn more about our neighbors, their values and, of course, a better choice for paint color.

Since that time Green Canopy has increased its commitment to neighborhood engagement in a number of ways. The company has hosted barbecues, sponsored block parties, held educational events on green building, hosted happy hours highlighting local non-profits, and more. The company has also programmatically adopted the Community Color Program to select the color palette that we use to paint every home.  Additionally, in 2012 the company formalized our introduction to the neighborhood with a “Meet the Builder” community meeting. This is neither required by the cities in which we build, nor embraced by the associations to which we belong. The Green Canopy Meet The Builder community meetings represent an early chapter in the story of every project, helping to set the tone once construction begins and ultimately ensuring greater community inclusion and consideration than otherwise.

The Green Canopy Meet the Builder community meeting is designed to introduce the company and our mission to inspire resource efficiency to the neighborhood; Green Canopy is a very different type of infill homebuilder. We flyer and mail invitations to the community to join us for an evening event that typically takes place in a local community center or library. During this event, the Green Canopy team introduces the company and team members. We put ourselves out there to receive input and feedback and to answer questions about construction, timelines and what to expect. 
Over the years we have met with hundreds of neighbors and learned so much about the communities in which we build. We have opened our projects to external influence, and while we can’t always accommodate, we always ask and listen with respect. 

In October of 2014 we layered into the Green Canopy Meet the Builder community meeting, an online neighborhood survey. Since that time, we have held over 20 community meetings and received results from 15 communities with responses from over 100 neighbors in Portland and Seattle. Once the surveys have been completed we process neighbor’s responses and send all responses back to the community members that filled out a survey. The responses are shared anonymously; yet when we review these results we receive highly informative feedback, which we use to learn, adapt and inform the Green Canopy team about the unique story of every community in which we build.  
For the first time, we are producing the results of the community surveys from which we have learned so much – they are full of critique, feedback and grace - take a look for yourself and let us know what lessons you learn in the comments below!

Download Green Canopy's Community Survey Responses to learn more about the communities in which we work.

Density Decisions


Mission Metrics: Case Studies on Impact Part 1

Written By: Aaron Fairchild, CEO of Green Canopy

"The current housing crisis can not be easily solved because the issues are not black or white. Our solutions will require a more colorful, creative and collaborative approach." 

Green Canopy is a walkable urban infill developer with a mission to Inspire Resource Efficiency in Residential Markets. Since our company's inception, we believed one solution to our global resource scarcity and climate change issues should be infill homebuilding done differently. So began our journey to create a different kind of homebuilder that is more socially and environmentally aware and responsive. In the weeks ahead Green Canopy will publish a series of blogs and data sets that highlight some of the more curious approaches we incorporate to help create positive social and environmental outcomes.
We began Green Canopy as a for-profit, market-based model with the desire to make a difference. The thinking was that if we were successful in making a difference, profits would follow and allow the Company to scale our outcomes and impact.

In 2009 we purchased our first infill lot. Our next 59 homes were deep-green, energy efficient, complete home remodels. With the subsequent changes in the market and City regulations, we pivoted entirely to new construction with an emphasis on energy efficiency, sustainable methods and materials as well as increased density through a fabric of single-family, duplexes, triplexes and rowhouses; a mix of housing that is considerably more resource efficient where urban land is scarce. Rather than remodel one home or replace an old home with one new home, we now replace a single, older home with an average of four new, third-party green built certified homes that are over 300% more resource efficient than what was there before. We will sell roughly 40 third-party certified, deep-green homes in Seattle and Portland this year.

As a mission-focused homebuilder we are often looked at with confusion and curiosity from other homebuilders. Occasionally we are mocked and written off as “do-gooders.” It is often assumed that we really don’t know what we are doing. After all, homebuilding is an old profession, historically operating in a similar manner for generations.
Well, the times have changed in just one generation, and many of us have not yet recognized it. In the last 50 years the population has doubled. The consumption of water and food has tripled and the use of fossil fuels has quadrupled. Species are going extinct at a rate of 1,000 to 10,000 times of the normal background rate of 1 to 5 a year. We currently lose dozens of species a day. Humans have done more irreparable damage to the planet in the last 50 years than all of humanity before. Today, humanity continues to flood our cities in droves. Managing the increased density has triggered a serious societal housing problem that will likely be with us for years to come. 
As a result, Green Canopy is increasingly relevant in these turbulent times. However, our business model is not a perfect solution, and no solution is. Our housing crisis will not be easily solved because the issues are not black or white. Our housing issues are full of pigment requiring more colorful, creative and collaborative approaches.  
Embedded in this thinking, perhaps a silver pellet is revealed? Green Canopy is not a panacea. We are simple. Green Canopy is not particularly sexy. We are straightforward. Green Canopy is not a silver bullet. We are just one pattern in the colorful quilt of potential solutions needed to increase access, affordability and sustainability in urban housing.
In 50-years from now, when we have 14 billion human heart beats on the face of the planet, underwater coast lines, food and water security issues, what will our cities look like: Bastions of hope, or of hopelessness? In 50-years Green Canopy’s homes will still be standing as evidence of the purposeful actions that an earnest group of investors and operators took to help make our cities bastions of hope and opportunity. 

Up next - Part 2: Community Meetings Provide Context
Community meetings are not required for the relatively small-scale development projects undertaken by urban infill homebuilders. However, for the last four years Green Canopy has been conducting community meetings for every project we have undertaken. We will share our rational and the data collected from the surveys we have given to the neighbors in the communities in which we build. 

Additional Reading:
With waves of humanity flooding into our neighborhoods, and no simple or easy solution to address our density issues, take some time to read through these two Sightline research articles. They are informative, well researched and helpful as we consider the choices ahead of us. Both of these articles highlight the need for Green Canopy’s approach to increased density.

Who's Making an Impact in Seattle Real Estate? Green Genius Awards on September 9


No one is questioning the success of the Seattle real estate market right now - but to folks like Susan Stasik, third time finalist for the Green Genius awards, its not about the quantity of home sales that really make her job worthwhile - its about the quality of the homes being sold; its about the people and the attitude toward better living; its about making an impact that affects more than just your pocketbook. Susan along with the rest of the Green Genius Finalists have more than one thing in common. First and foremost they are all stellar agents who know how to treat their clients, negotiate, and navigate the complex landscape of the Seattle housing market. They are all fierce agents with a passion for their jobs. But they do more than just navigate... they shape our market. 

These Green Genius Agents have managed to really push the needle in real estate while simultaneously helping the Emerald City build a reputation for progressive, sustainable living. They are at the forefront of a national trend, and we couldn't be more excited to award their positive influence.

On September 9th - we will announce the winners of the Green Genius Awards at the Annual Built Green Conference in Seattle. Each winner will receive a cash prize. We are thrilled to award these brokers for all they have done this past year. 

We asked each finalist a number of questions to get to know them before the Award Ceremony. Here is the first of seven posts. Let's see what Jay Miller has to say about green building!

Jay Miller 
JAY MILLER - Green Genius Listing Agent of the Year Finalist
Keller Williams Realty  -  Alchemy Real Estate Group

Sam: What gets you excited about the green building movement?

  • Jay: If we can translate the green movement in the same way the EPA has done with MPG stickers for cars, the energy efficiency and lower cost of owning a home (and communicating this to buyers) seems to me to be the most important. What does green in their wallet mean? We are a little numb to Energy Star and efficient hot water heaters, and it’s hard to know what overall impact it has on the home as a whole.

  • Sam: What was your favorite green project?

  • Jay: I loved all of the green projects I worked on this year of course! My favorite Isola project, the Woodlawn avenue "Licton Springs" because they felt truly stand-alone and AFFORDABLE GREEN.

  • Sam: What advice would you give to buyers and sellers of green homes?

  • Jay: It's easy to share with a buyer that an investment in a green home today, may seem like it's pushing the norm, but it's GOING to be the norm in 4.5 years when they sell. Setting up yourself to be a competitive green seller in a market that will soon have that as the norm.

  • For green builders, while mathmatically, they might sell for more...we haven't seen a recession yet...and there's better insulation against market swings.

  • Sam: What do you like most about living in the PNW?

  • Jay: That's it's turned into San Diego... but with better weather. The climate, activity & people make the PNW worthwhile. Two years ago I thought my family would have moved because of the weather - but now we are actually staying because of it.

  • Sam: What was your superlative in high school – (ie most likely too…)?

  • Jay: (Laughs) I’m not sure I was voted for anything, but if I was, it would’ve been in 5th grade.  I may’ve been voted most likely to succeed in business, in Mr Ito's class. I owned 1/2 the class businesses at the end of the year in a class market simulator project.  I don’t think that’s what Mr. Ito had in mind when he set up the project!  

  • Sam: What is your favorite pump up song? 

  • Jay:  Huh? 

  • Sam:  You know…like you’re about to step into a heated negotiation…or you’re very, very late coming home from work…or both.  What do you play in the car at ear wrecking volume to get yourself pumped up?

  • Jay: Black Eyed Peas - don't stop the party

  • Sam: What is your favorite comfort food?

  • Jay:  I think a snobby burger is the right fit... Cowboy cheeseburger at Eureka

Limited Supply Fuels Appreciation... For Now


I have been writing for months now about the lack of supply in our market. As a result of the limited supply the market made a radical shift around this time last year from a being a buyers’ market to being a sellers’ market. Currently it is not uncommon for us to receive multiple offers on our homes, or for them to sell over our original list price. This begs the question, how long can this last?
Inman reports that homebuilders are beginning to kick it up a notch and build more homes in response to the lack of supply, and yet 90% of home sales in the U.S. are existing home sales, or re-sales. It is my belief that, in Seattle, the market will continue its heated rate of appreciation fueled by the supply constraints; however it will slowly taper off as home values continue to climb. When existing homeowners begin to realize greater equity, they will begin to have the ability to sell their home and use the proceeds to buy a better home. As more and more homeowners contemplate selling and begin to take action, the lack of supply will gradually disappear and supply and demand will equilibrate. When that comes to pass home appreciation rates will level off and normalize.

Given that Seattle has an unemployment rate under 6% it is hard to say just when supply and demand will come into balance. This is still one heck of a desirable town to live in and it seems like the majority of our homebuyers are coming from out of town for job related reasons. As the local unemployment rate continues its decline toward full employment, home values will continue to rise fueled by more demand than supply. Given this influx of homebuyers into the area we could be realizing an appreciation trend line that will outpace the rest of the country for months to come.

Buckle Up


Contributed by Aaron Fairchild:

Buckle up, there will be turbulence
“Plunge in Home Sales Stokes Economy Fears” WSJ article said the following about the national real-estate market on Wednesday, August 25, 2010:

  • “Sales of previously owned homes fell 27.2% in July. . . Lowest level since (NAR) started tally in 1999.”

  • “Economists say sales drop…means another drop in housing prices is on horizon.”

  • “High unemployment and meager wage growth and falling home equity means depressed consumer spending.”

In the same WSJ issue the editorial page reported that national homebuilders’ stocks rallied on Wednesday as the news of the decline in home buying was announced.  Apparently investors believe the time for getting into the real estate market is now, when home prices and employment rates are at or near their bottom.

Is there really a “National Real-Estate Market”?
According to the Bureau of Labor and Statistics the Seattle area unemployment rate in June was 8.6% and holding steady.  Employment in our region is anchored by desirable jobs in growing sectors of the economy.  We live in a beautiful part of the world with plenty of water, mountains and forests.  People continue to move here as the map published by Forbes (June, 2010) illustrates below.  Red lines indicate a net migration away from the city, black indicates net movement into the city.

The last time we saw more people leaving than coming to our state was in 1982 and demographers expect growth in this region to continue as unemployment, poor economies, water shortages, and desertification continue to push people out of other regions of the country.  Additionally, homes in Seattle are more affordable today than they were during the period of our local depression, where 1 in 8 people were unemployed, from 1969 to 1973.

How does all this affect G2B?
Less Competition at Acquisition
G2B continues to believe that in the near to mid-term, property values will remain flat or rise only with the rate of inflation.  This will shrink margins for investors who look to buy and hold.   The uncertainty in our real estate market will continue to drive nervous investors and speculators to the sideline leaving less competition for acquisitions of fixer properties in neighborhoods where G2B thrives.

More Competition at Sale
This situation continues to play to G2B’s strength.  G2B differentiates its homes in the direction the market is trending.  G2B designs comfort, quality, energy efficiency, and green into existing homes in neighborhoods with a strong sense of community.  G2B’s differentiating design appeals to the values that homebuyers are demanding.  The current market conditions only enhance G2B’s edge when competing for precious homebuyers.

Knowing the Market with Deep Experience
G2B knows how to accurately value homes at acquisition and sale.  Having compared and evaluated over 15,000 homes in Seattle’s good and bad times gives G2B the strategic edge needed to exploit opportunity in uncertain markets and create additional value.

We are certainly living in interesting economic times.  Turbulence and uncertainty provides opportunity for smart moves and strong profits.  We are excited about this market and extremely well positioned to thrive!

Residential Green Leases = “Shared Incentive”


Post contributed by Aaron Fairchild:

Welcome to the residential world of green home living.  You can now buy a green built home with a variety of different certifications. From LEED for homes to Built Green 3, 4, and 5 stars to Earth Advantage homes, environmentally green homes are more and more available to interested home buyers. In fact, in the Seattle region 25% of all new residential home construction is built to a green building certification. But what about homes for rent? While there has been a lot of attention paid to “green leases” in the commercial real estate market, if you are in the residential rental market, and concerned about your utility costs and environmental impact, there are next to zero green rental options available to you. What gives?

The issue of “split incentives” is the culprit. In a capsule the issue is that the landlord generally doesn’t pay the energy bill and wouldn’t benefit from lower energy costs that come from investing in enhanced energy efficiency, and the tenant doesn’t own the home and is therefore unlikely to invest in energy efficient appliances or systems. This issue is of particular interest to me.

I am the Managing Partner at G2B Ventures, LLC. G2B is establishing an energy efficient residential real estate investment fund. The Efficient Real Estate Fund will buy primarily single family homes at deep discounts and then refurbish them with an eye toward energy efficiency. Once the investment properties are acquired and refurbished we will be renting them out to capture rental income during the life of the Fund.

Our property management team will tell you that newly refurbished or constructed homes generally command higher rents. While this helps us at the Fund, we will eventually recapture all of the costs of energy efficient and general improvements when we sell the properties.  But how do we increase our rents to help recapture the costs of energy efficient up-grades more quickly?

We are currently developing a model that shares the benefits of energy efficiency between the landlord, which in our case is the Fund, and the tenants. Here is what we are working on:

Step 1:

The landlord must start with an understanding of the energy costs associated with normal or average energy consumption and then baseline the property. For example, the landlord determines that during the winter months the average utility bill runs roughly around $250 and in the summer the rough bill is $200.

I am using easy to absorb numbers and I know this is a rough analysis so read on…

Now the landlord does the energy improvements and using the kWh savings for every measure installed she can easily calculate the monthly cost savings. Using our data for the Seattle area we roughly calculate that a smart $10k investment in energy efficiency can save roughly $50 per month. Using a $50 dollar per month savings we can now assume that during the winter months the average home occupant will spend $200 per month and during the summer he will spend $150.

Step 2:

The landlord will now offer the home for rent that includes the utilities within the rent payment. The rental rate is determined based on market rents plus the pre-retrofitted utility cost projection.  Rent including utilities is normally avoided because the tenant is not incentivized to conserve energy, which could end up costing the landlord dearly. However, in our model, if the tenant uses less than the baseline utility monthly expense ($200 in winter and $150 in summer), the landlord will share the savings with the tenant 50/50. Instead of a split incentive, we are aiming for a “shared incentive.” For example, if the tenant’s bill in the month of January were only $150, the tenant would receive a check for $25, and the remaining $25 would go back to the landlord.

Clearly this model requires enhanced sophistication on behalf of the landlord. Good tracking systems and transparency are absolutely necessary. However, the benefit is clear for the landlord…


•    Difficulty tracking
•    Cost of retrofit
•    Calculating the savings borne through efficiency


•    More quality tenants
•    Better relationship with tenant
•    Enhanced property cash flow
•    Enhanced asset value

…and for the tenant.


•    Generally higher rental rates
•    Landlord knows the utility consumption behaviors
•    Greater interaction with the landlord


•    Newly refurbished / clean / healthier rental
•    Rental characteristics align with values
•    Ability to receive energy savings checks every month the energy costs are below baseline.
•    Greater interaction with the landlord

Is Seattle Real Estate Reaching the Bottom...?


by Aaron Fairchild:

You can’t go to a cocktail party these days without someone saying now would be a good time to invest in real estate. Of course, one question that always arises is, “When are we going to hit the bottom?” This is a question my father and I have been debating for the last several months. He owns and runs a local bank and my partners and I invest in real estate. He believes that the bottom is still out a fair bit, whereas I see clues that the bottom will be sooner than later. He is fond of telling me stories from the early to mid-seventies; these stories inform both of our opinions. To him, they indicate how bad it could get, and to me, they form a stunning contrast to today’s current market realities.

Let’s take a look at some of these historical clues that indicate the health of the Seattle market.  The first set of clues to examine appeared during the period from the mid 1970’s through the first quarter of 1988.  This period represented 13 difficult and depressed years in the region; the regional economic gorilla was Boeing, and they had just eliminated over 60% of their workforce, 64,000 people. According to my father, “during that time loan officers carried around quit claim deeds in their briefcases to take control of homes that laid-off Boeing engineers could no longer afford.” Furthermore, during that time he was typically lending to single-income households. There were fewer women in the workplace than today, and even if a woman wanted her income to count, FHA underwriting guidelines required a letter stating that she was using contraception.  Loan officers called it the “pill letter.”

Another story from my father relates to local consumer confidence.  At that time, he used to tell his loan officers that one of their jobs was to convince depressed real estate agents that they could actually find a client to help buy or sell a home.  People were leaving Seattle in droves, and driving past the famous billboard that read, “The last person to leave Seattle, turn out the lights.” It is hard to imagine how low consumer confidence really was, when today Seattle has far more employers than it did back then, and attracts a steady and diversified flow of employees capable of home purchases. The last time Seattle saw more people leaving than coming was in 1982.

Now let’s look at further clues that arose after the “Boeing Bust” that show what a sustainable real estate market looks like.  For the most part, my father and I agree that from 1988 until late 2000 was a period of stability in the market. Interest rates dropped into single-digit ranges, allowing homeowners cheaper and easier access to mortgages.  Inflation was low, and the economy in general was moving along steadily.  Most importantly, incomes were able to keep pace with increases in home values; as more households took on second incomes, there was more money in the household to buy or upgrade homes.  Fortunately, while there was easier access to capital than in the 1970’s, underwriting guidelines remained conservative.  To put less than 20% down on a property, you generally needed to purchase Mortgage Insurance and stringent debt-to-income underwriting ratios provided sustainability in an otherwise solid real estate market.   During this time, the correlation between incomes and housing prices remained generally constant.  This was a time of prosperity and sustainability where housing values increased at a rate of roughly 5% per year between 1990 and 2000.

The run up in property values between 2000 and 2007 provides a dramatic backdrop to where we find ourselves today. The incredible rise in property values came as a result of easy access to capital due to lax underwriting guidelines. These loans were unsustainably constructed by banks to sell into profit-thirsty debt markets.

The result in this chaos is, of course, the recent reckoning where mortgages defaulted, banks were forced to write off huge amounts of bad loans, and a glut of homes fell in foreclosure precipitating a concurrent drop in housing prices.  Now we see our final clues to indicate the market has or will soon reach bottom: we observe a return to rational lending practices, an end to wanton speculation, and unprecedented government intervention in stopping the flow of home foreclosures and increasing consumer confidence.  Finally, the real estate market is now showing signs of normalizing to more predictable, rational levels as they relate to income levels and affordability.  The Seattle housing market has not been more affordable anytime during the last thirty years.

Although it is too early to tell who will win our debate, my father and I agree that the factors which drove down housing prices are finally correcting.  Time will tell where the bottom of the market is, but the question still remains at the heart of our debate, “Could it get as bad as it was during the depressed time of the early-to-mid 70’s?” My father’s stories create the backdrop to my outlook on our local real estate market and provide valuable insight and lessons; however it is hard to imagine going back to a time where Seattle experienced negative population growth, 12% unemployment, with predominately single-income households, and only one major employer.

The clues of contrast examined through his stories and prior economic indicators provide us with lessons from our past and demonstrate just how far we have come over the last 35 years. We have certainly made mistakes and have been guilty of greed, and as a result we have paid the price in a substantial drop in property values and the vaporization of wealth borne from home equity. However, when contrasted with the clues from our past, returning to the market conditions that existed in the 1970’s seems unlikely. I believe we are likely near the bottom of a fundamentally sound Seattle real estate market.