Orig­i­na­tion

Ama­zon’s sec­ond head­quar­ters fa­cil­ity could be both a driver of and hin­drance to the home sales mar­ket in the city that ends up with it.

National Mortgage News - - Contents - By brad finkel­stein

Ama­zon HQ2 cities should brace for ‘ar­ro­gance’ ef­fect on home prices

which­ever city ama­zon picks for its sec­ond head­quar­ters is likely to see spec­u­la­tive ac­tiv­ity drive hous­ing prices up and re­duc­ing af­ford­abil­ity for those al­ready look­ing to buy.

Even be­fore the site is named, spec­u­la­tors will be out there snap­ping up prop­er­ties in ex­pec­ta­tion of ris­ing prices, said Chuck Sil­ver­ston, a prin­ci­pal at Unlimited Sotheby’s In­ter­na­tional Realty in Brook­line, Mass.

“An in­fu­sion of relocat­ing peo­ple is go­ing to in­crease the de­mand for hous­ing stock in the area. We saw that with GE,” he said, par­tic­u­larly in the grow­ing Sea­port district, where the con­glom­er­ate is mov­ing its head­quar­ters.

When there was talk of putting a casino in Suf­folk Downs, a horse rac­ing track that is be­ing closed and re­de­vel­oped lo­cated in the East Bos­ton neigh­bor­hood, spec­u­la­tors snapped up prop­er­ties there, Sil­ver­ston added. That is a site be­ing as­so­ci­ated with Bos­ton’s bid for HQ2.

But at first, rent­ing a home, not buy­ing, will be the likely fo­cus for many of those mov­ing, he said.

“When peo­ple re­lo­cate to a new city, they of­ten want to rent for a year first to kind of get their feet wet and fig­ure out where they want to be and then go from there,” said Sil­ver­ston. Af­ter that ini­tial pe­riod, they con­sider tran­si­tion­ing into home­own­er­ship.

Of the 19 U. S. cities on Ama­zon’s short­list for its HQ2, 10 are al­ready con­sid­ered over­val­ued, while only two, In­di­anapo­lis and Pitts­burgh, are un­der­val­ued, ac­cord­ing to CoreLogic (Toronto is the 20th city in con­tention).

“Some of the con­tenders have home price increases that are trend­ing higher than the na­tional av­er­age of 6%,” said Frank Nothaft, chief econ­o­mist for CoreLogic in a press re­lease. “Adding a job cre­ator like Ama­zon would add fur­ther hous­ing de­mand and up­ward pres­sure to hous­ing costs.”

Large com­pa­nies typ­i­cally em­ploy a re­lo­ca­tion man­age­ment com­pany to help fa­cil­i­tate the move in- clud­ing connecting the relocat­ing em­ploy­ees with key sup­pli­ers such as mort­gage lenders, house­hold goods ship­pers, real es­tate agents and oth­ers, said David Fowler, a re­gional vice pres­i­dent for the Wells Fargo Re­lo­ca­tion Mort­gage Pro­gram. Wells Fargo did not com­ment on what cor­po­ra­tions it works with.

It is rare that a com­pany man­dates an em­ployee use that re­lo­ca­tion spe­cial­ist, he said.

There were grow­ing pains in Seat­tle when Ama­zon grew from be­ing a book sell­ing web­site to be­com­ing a dom­i­nant player in on­line re­tail, said Aaron Ter­razas, the se­nior econ­o­mist at Zil­low, which is also head­quar­tered in that city.

“Seat­tle home val­ues have al­most dou­bled and rents have in­creased by half, strain­ing af­ford­abil­ity,” said Ter­razas in a press re­lease. “Of course, Seat­tle’s tremen­dous growth and some of the ten­sions it has cre­ated can’t all be laid at Ama­zon’s doors alone.”

But Ama­zon’s growth at­tracted other em­ploy­ers to the re­gion, and Zil­low ex­pects that to hap­pen in which of the 20 fi­nal­ist cities gets the nod.

Ama­zon’s HQ2 “will boost over­all lo­cal eco­nomic growth — all of those highly-skilled en­gi­neers will need doc­tors, real es­tate agents, bar­bers, babysit­ters and baris­tas, too,” Ter­razas said.

Ama­zon has opened three fa­cil­i­ties in the Den­ver area in re­cent years. Google has opened one in

Boul­der and it took three years, said Kelly Moye, a real es­tate bro­ker at Re­max Al­liance in Bloom­field, Colo.

“The per­cep­tion of Google com­ing to Boul­der cre­ated, I’ll call it ar­ro­gance, among home­own­ers,” said Moye. Cur­rent home­own­ers de­cided their house was worth more than it was be­fore and marked it up ac­cord­ingly. “Be­fore Google even showed up, our mar­ket boomed just by the pure fact they were go­ing to come.”

Such spec­u­la­tive ac­tiv­ity could end up mak­ing hous­ing un­af­ford­able for her cur­rent clients, said Jen­nifer Ale­man Salazar, a loan of­fi­cer at Ser­vice First Mort­gage based in the Dal­las sub­urb of Gar­land, Texas. She sup­ports the North Texas bid for the HQ2.

Toy­ota re­lo­cated its North Amer­i­can head­quar­ters from Tor­rance, Calif., to the Dal­las sub­urb of Plano and brought in 5,000 jobs. That contributed to the strain on the hous­ing mar­ket.

Ama­zon will be cre­at­ing 10 times as many jobs.

Without Ama­zon, prices in the area are ex­pected to in­crease by 5.6% ac­cord­ing to data she saw on Re­al­tor.com. With prices and in­ter­est rates ex­pected to rise through the end of the year, she finds her­self re­run­ning numbers of cus­tomers look­ing to qual­ify for a loan.

At that pace, a $200,000 home in Dal­las should ap­pre­ci­ate to $208,000 by the end of the year. But at the 18% rate of ap­pre­ci­a­tion she saw for Seat­tle, that home would sell for $236,000.

Us­ing a 20% down pay­ment and 5% in­ter­est rate and in­clud­ing taxes and in­sur­ance, the monthly pay­ment goes from $1,327 in the first sce­nario to $1,692 in the sec­ond.

“We re­ally, as lenders, are go­ing to have to keep up with mak­ing sure they still qual­ify,” said Ale­man Salazar. “Be­cause so many of our buy­ers are push­ing their numbers anyway,” and the in­crease could keep them from buy­ing a home, es­pe­cially as salary growth does not keep pace with price growth.

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