The Housing Bubble

It’s desk clearing time for this blog. “Fraud and sloppy lending practices are likely to be at the heart of recent news of rising defaults in the sub-prime mortgage lending sector,’ said William Poole, the president of the St. Louis Fed, on Friday.”

“Poole said many of the sub-prime loans did not even require that borrowers document the income listed on their loan application with a pay stub. ‘Many companies made too many loans that were poorly documented and now those are coming home to roost as the mortgage interest rates went up,’ Poole said.”

From Connecticut. “There are still a few developers willing to take a chance on building homes in the hope that someone, someday soon, will want to buy them. ‘People pay top dollar when things are hot, and they get better bargains when it’s not,’ Jim McGrath said. ‘We’re giving them a little more than they’ve gotten in the past.’”

“Wisconsin’s home building business started this year as it ended last year: slow. Matt Moroney, executive director of Metropolitan Builders Association, called the January market ‘an election-year hangover.’ ‘With all that negativity, people were not as upbeat or willing to buy a home,’ Moroney said.”

From Florida. “Infrastructure, affordable housing and sustainability were just some of the issues addressed by a panel of experts Thursday during Michael Saunders & Co.’s fourth annual Luxury Living Conference.”

“‘We’re never going to be able to have affordable housing in Sarasota, so let’s shut up about it and worry about transportation,’ Saunders suggested.”

From the UK. “Shelter South West regional manager Jackie Beech said: ‘More and more people in Wiltshire are living with the devastating threat of homelessness. Sky-high prices created by a chronic shortage of housing are forcing more families to overstretch themselves to get on the property ladder.”

“Prices in the Jerusalem property market have been skyrocketing over the past couple of years, raising questions over whether a real estate bubble exists in certain areas of the capital city.”

“‘There is a housing bubble waiting to burst and those who bought property in certain neighborhoods of the capital as a short-term investment could lose out as there are signs of a slowdown in property sales in certain parts of Jerusalem and a decrease in flat sales by foreign residents,’ said real estate advisor and specialist Reuven Bielski.”

From Australia. “Stress in the housing market has led to growing problems with home-loan defaulters at the same time as more buyers say they will take out 100 per cent mortgages. ‘From a lending perspective, a lack of deposit is not a major obstacle,’ Wizard chairman Mark Bouris said. ‘What really matters is ensuring that prospective borrowers can comfortably meet their mortgage repayments and if interest rates were to increase.’”

From Illinois. “Dear Mr. Berko: I missed an opportunity to purchase a condo-hotel in Fort Lauderdale last April because I didn’t have enough money for a down payment. Now I have the money because we sold our interest in a farm. I’m looking at this beautiful condo-hotel in Las Vegas.”

“Dear B.R.: Condo-hotels … ugh — and at $1,000 per square foot! I marvel at the consummate gullibility of a trusting, easily exploitable and greedy American consumer.’”

“Renters be warned: Landlords are expected to raise apartment rents, a report to be issued today by Marcus & Millichap finds. Renters will get a bit of a break in places such as Miami, Las Vegas and San Diego, where investors bought thousands of condos. Since the market faltered in late 2005, many of those condos have been empty, and investors are seeking tenants to help pay the mortgage.”

“Mohamed Amar bought two Las Vegas condos in 2005 that he’s trying to rent. ‘I thought it was a good investment,’ says Amar. ‘But when I tried to put it on the market, the developer started cutting the price, and they killed everybody.’”

“The long awaited shakeout among real-estate agents is finally happening. If hordes of inexperienced agents are scrapping for business, says Christopher Galler, a senior VP of the Minnesota Association of Realtors, that can only lead to ‘a race to the bottom in fees.’”

“Cloude Porteus left his job at an Internet start-up in 2001 to start a career in real estate in Mill Valley, Calif. He says last year was a bust. ‘I didn’t make a penny in 2006, even though I had three listings,’ Mr. Porteus says.”

“Mr. Porteus found a new job last year as a product manager at another Web start-up, in Alameda, Calif. ‘Being at a start-up there’s always risk, but not having to worry about how much money you are going to make every month is awesome,’ he says.”

From Business Week. “Investors swallowed negative news from two of the biggest players in the subprime mortgage market on Feb. 8.”

“‘This is the leitmotif of this whole thing: These people don’t really know what they are doing in mortgage banking,’ says Stuart Plesser, a mortgage lender and insurer analyst for Standard & Poor’s. ‘They are writing whatever loans just to write loans, thinking they will worry about it later. But now it’s later.’”

The Union reports from California. “Grass Valley’s median home price fell to $350,000 in December, down 20 percent from $439,000 a year earlier. The local market is in a normal downward side of the latest upward cycle, said Skip Lusk, executive director of the Nevada County Board of Realtors.”

“‘The bubble doesn’t burst,’ Lusk said. ‘It just kind of deflates gradually.’”

“Medians in neighboring counties are dropping more steeply. The Placer County median dropped nearly 16 percent to $430,000 from $510,250 the year before. Sacramento County’s median dropped 9 percent to $352,168 from $387,000 a year before, DataQuick reported.”

“‘It’s my opinion that, probably, our median price is not going to go down significantly,’ said Joan Lehman, broker in Grass Valley. ‘Our area is different from other areas down there. They have so many new homes, and when they don’t sell, builders give all kinds of incentives.’”

From CBS 5. “The ripple from a slow housing market consumes a different victim almost daily. In the Belavida subdivision in Elk Grove, brand new homes sit for months. Desperate to avoid still more losses, home builder Standard Pacific sent upgraded model homes to auction last Saturday with a bargain price tage.”

“‘These homes are priced well below anything in Elk Grove,’ said Keith McLane of West Coast Home Auctions. ‘The seller is looking to sell 6-homes very quickly.’”

“They sold alright: a 4 bedroom home went for $440,000, a good $150,000 less than it sold for 18 months ago.”

“Manuel Dizon and his neighbors are now worried about their property values. ‘It hurts because if you bought it for 580 (thousand dollars); what are you going to do in 2-years?,’ Dizon said. ‘If you have a 2-year fixed on your house and you to refinance your house and you don’t have value in the house.’”

“With so many homes on the market, it’s almost impossible to sell your way out of a crisis like that. Consequently a record number of homeowners are going into foreclosure.”

“Appraiser Amy Perkins says that ripple has left major banks and mortgage lenders with staggering losses. ‘There weren’t any short sales, very few for the last 3 years in a row,’ Perkins said. ‘And within a 20 mile radius I’ve been seeing 300 or more.’”

The Contra Costa Times. “The East Bay’s employment market remains the Bay Area’s star performer, but the relentless erosion of the housing market could tarnish the region’s economic luster and darken the job outlook, a new report warns.”

“Economist Ryan Ratcliff of the Anderson Forecast suggested real estate will impede the East Bay economy this year. ‘We’ve only seen the beginning of the East Bay real estate slowdown,’ Ratcliff wrote in his report.”

“‘Like many other regions in California, real estate has gone from pulling the economy forward to actually holding it back, it’s just taken longer to happen in the East Bay than in most other parts of the state,’ Ratcliff wrote in his study.”

“‘Since Contra Costa County has been the center of gravity for the building boom, this suggests that we’ve only seen the beginning of the East Bay real estate slowdown,’ Ratcliff warned.”

“Still, some economists such as Sean Snaith, a consultant with the Stockton-based Business Forecasting Center at University of the Pacific, say the fallout from the housing slump, as well as the slump’s extent, has been overplayed by economists such as those with the Anderson Forecast.”

“‘It was not a housing bubble, but a housing soufflé,’ Snaith said. ‘If some of the key ingredients in the soufflé were missing, it would go flat. But it was not a bubble.’”

The Press Democrat. “By next year, the Third Street Cinema theaters in the heart of downtown Santa Rosa may give way to a 14-story condominium called the Comstock. Sales prices for the 116 units will run from the ‘high 300s to $1 million for some of the penthouse suites,’ said Mike Marovich, a spokesman for West Bay Builders.”

“Marovich said the Comstock will house about 200 people in one- to three-bedroom units ranging from 600 to 2,000 square feet. He said there is trepidation about spending upward of $60 million in a city with an untested high-rise market.”

“‘Our gut and intuition, however, tells us there is a there, there,’ Marovich said.”

“California’s housing slump resulted in part from conflicting expectations of buyers holding out for better deals and sellers still seeking a premium for their homes, a state Realtors group concluded.”

“Association President Colleen Badagliacco said the role of real estate agents during that period was to try to educate sellers that the market had changed. But it took from two to six months for that message to sink in.”

“‘They remember that their neighbor sold their house, just to pick a number, for $800,000 four months ago,’ Badagliacco said. ‘In their mind then, the house is worth $800,000. The agent has to be the voice of reason.’”

The East Valley Tribune reports from Arizona. “When Shannon and Chad Edgerton jumped into the housing boom frenzy, they didn’t want to miss out on the giant equity gains homeowners were celebrating. But the couple plunged in a little too late when they bought a roughly 1,280-squarefoot home in the Queen Creek area in 2005. Since then, home sales and prices have tumbled throughout Pinal County.”

“The median price in Pinal County also slid, dropping from $220,000 in the fourth quarter 2005 to $191,500 in the same period last year. ‘Our timing wasn’t quite right,’ Shannon Edgerton said.”

“Edgerton’s three-bedroom home is one of thousands that have risen from the dusty Queen Creek landscape in recent years. And the building hasn’t stopped, even as builders are trying to unload existing inventory.”

“They’ve tried to entice buyers with pools, cars, appliances, landscaping and tens of thousands of dollars in incentives. ‘They keep offering all of these things that we can’t compete with,’ Edgerton said.”

“With so many new residents in peripheral areas, traffic on the two lane roads has become increasingly congested for commuters driving to work. During the boom, that drive was worth it for many, said Jay Butler, director of ASU’s Realty Studies program. ‘When you had that big run up in prices, nobody cared where they lived,’ Butler said. ‘They were going to be instantaneous millionaires.’”

“Nathan King was transferred to Wichita, Kan. just months after his family moved into their Queen Creek home. They tried to rent the place out but couldn’t find any takers. King then listed the home in August and, like many sellers in the area, has dropped his asking price several times. Meanwhile, he bought a second home in Kansas.”

“‘It’s been pretty frustrating,’ he said. ‘It’s never fun to have two house payments and not be able to find renters. I just feel they built too many homes too fast.’”

The Review Journal from Nevada. “The number of homes listed for sale in Las Vegas Valley climbed to 18,774 in January, a 13.8 percent increase from the same month a year ago, the Greater Las Vegas Association of Realtors reported.”

“Statistics from the Realtors association show that single-family median home prices dipped slightly in January to $302,000, down 2.8 percent from a year ago.”

“‘The (builder) incentives worked. They’re out of inventory,’ said Dennis Smith of Home Builders Research. ‘The investors are looking to buy 20, 30 or 40 homes, but they can’t find them now.’”

In Business Las Vegas. “Las Vegas homeowners are cutting prices to sell their homes in this soft real estate market. The median price of homes sold on the MLS dropped 1.3 percent in January to bring the total decline to 4.4 percent since June, when the sales price was an all-time high of $315,000, according to statistics released by the Greater Las Vegas Association of Realtors.”

“The median price of homes sold in January on the service was $302,000 and is poised to fall below $300,000 for the first time in nearly two years. The prices, however, don’t account for any incentives many sellers have been offering in recent months.”

“‘I think we are starting to see people come to the reality of where the market is and adjust their prices,” said Ken Perlman, VP of Sullivan Group Real Estate Advisors. ‘Those who bought homes in 2004, 2005 or earlier have gotten over the euphoria of appreciations they’ve had and don’t expect to recover every cent of it,’ he said.”

“‘What’s happening in Las Vegas is no different than in Phoenix, San Diego or other parts of Southern California,’ Perlman said. ‘All of the markets had great years and people had a lot of fun, but it wasn’t realistic to sustain those price increases.’”

“When it comes to the price of land in the Las Vegas Valley, Derek Rafie said he’s telling clients to look beyond the statistics. Rafie, a first vice president of the land services group at CB Richard Ellis in Las Vegas, said media accounts last week portraying the price of land jumping 78 percent in the Las Vegas Valley during the past year has left some explaining to do.”

“The clients didn’t make a mistake by not jumping in and avoiding paying steeper prices later, Rafie said. Instead, he tells them the raw numbers don’t tell the true picture. That number, reported in a Review-Journal news story, can’t be taken at its face value because it includes resort property, Rafie said.”

“There were only 572 acres sold during the fourth quarter, which is down about 70 percent from the number of acres sold in the fourth quarter of 2005. ‘When you lump everything together, especially when you have gaming property, it looks like a large appreciation when it really wasn’t,’ Rafie said.”

“‘Right now, I am not sure landowners understand the value of their properties have decreased,’ Rafie said. ‘There is a softening. If you need to sell your property in the short term, you have to discount your price.’”

“More than 19,000 Las Vegas Valley homes entered foreclosure in 2006, and the filings show no signs of subsiding. Foreclosure filings in Las Vegas peaked during the fourth quarter, when 6,295 homes entered some stage of the process. By the time 2006 ended, one of every 31 households had entered foreclosure.”

“Las Vegas had nearly 24,000 homes, town homes and condos on the market at the end of January.”

“Based on what he’s seeing day to day, Michael Krein, president of Nevada Real Estate Services, which handles foreclosures, said it appears Southern Nevada foreclosures may be several months away from reaching their peak. For many homeowners, the jump in monthly mortgage payments won’t take effect until this year, he said.”

“‘I can’t hire staff fast enough and get them trained,’ Krein said. ‘It looks like they are going to continue to increase at a rapid rate.’”

“Many of the homes he’s taken possession of recently were owned by investors who bought with the intent of gaining rapid appreciation and selling, Krein said. Several haven’t even been lived in, he said.”

“Other investors have rented out their homes for income and weren’t making their mortgage payments, Krein said. He said he’s evicted several renters who weren’t aware their landlord was pocketing the cash rather than paying the mortgage.”

“Banks have been reluctant to discount prices given the losses they are already facing, but Krein said they will eventually price the homes realistically, possibly discounted by as much as 5 to 10 percent.”

“The rising number of foreclosures has already affected lenders who continue to tighten guidelines for home loans, said Steve Schauer, president of a local mortgage broker. Like others, Schauer said he doesn’t believe foreclosure filings have peaked yet.”

“Many homeowners have sought to refinance their homes in the last two months but have been unable to do so because their appraisal shows their properties are valued at tens of thousands less than they were bought for at the height of the real estate market, Schauer said.”

“Schauer recounted one case in which an investor bought a home at $350,000. Today it’s worth $295,000. His mortgage payment is $2,500 a month and he rents it out for $1,400 a month, taking a monthly loss of $1,100.”

“‘He can’t afford to take a $60,000 loss if he sells,’ Schauer said. ‘So he can continue to rent it out at a loss per month or let it go to foreclosure and ruin his credit.’”

The News Press reports from Florida. “The developers of a 473-town house community in south Fort Myers are suing 25 people for nearly $700,000 in deposits for not closing on the properties and they want the court to force the investors to buy them. But some of those are being sued said the developers, Palm Beach Gardens-based EH Building Group, took too long to build their units and feel they were misled about some aspects of the property.”

“And with the housing market in Southwest Florida softening, they said it is smarter financially to forfeit the deposits than to go through with the contract and buy the property.”

“‘We don’t think they’re worth the list price,’ said Frederick Ryan of Fort Myers Beach. Ryan is one of six local residents who are being sued; the lawsuit also names buyers from California to New York to the United Kingdom. He said he planned on using the property as an investment, but felt misled by the company as to the proximity to each unit.”

“He said he decided to lose his 10 percent deposit, or $26,000, instead of going through the closing and spending nearly $300,000. But lawsuits filed early this week by the company are asking a judge to let the company keep the deposits as well as force the investors to finish the closing.”

“For Patti Southall of Fort Myers, the town house was going to be a place to live when she and her family moved to Fort Myers from California. She snagged one of the models in October 2004, when they first went on sale. But she said delays in the building process made her decide to forfeit the deposit and buy another house.”

“‘Obviously, I didn’t need it as a primary residence,’ she said. ‘So much time’s gone by and obviously, the market’s not moving like it was. Now, I can’t sell that property for $265 (thousand) if my life depended on it,’ Southall said.”

The St Petersburg Times. “Lenders sued 211 Pasco homeowners for nonpayment in November, up 8 percent from October and 87 percent over 12 months.”

“Many were purchased by inexperienced individuals who, egged on by eager developers, real estate agents and lenders, expected to flip the homes for a quick profit. But demand cooled, and now a growing number of these investors are struggling to cover a mortgage they never wanted. Some are simply walking away.”

“‘I don’t think there’s any mystery to it,’ said Greg Hallam, president of the Mortgage Bankers Association of Florida. ‘We lenders don’t tell people ‘no’ often enough. You’ve got to be a sophisticated person to be in the marketplace, and we probably let some in we shouldn’t have.’”

From MarketWatch. “Condominium sales have stalled as investors flee the market and developers who jumped into the sector during the boom of the last three years are turning their attention back to rental apartments, condo and apartment builders said Thursday at the International Builders show here.”

“‘There were a lot of conversions in Orlando, for instance, but there is now very little appetite for a $250,000 garden unit,’ said Steve Patterson, an Orlando builder. ‘There is now a shadow market for these units as investors rent those out.’”

“‘Condos are here to stay,’ said Sharon Dworkin Bell, senior staff VP for multifamily with the National Association of Home Builders. ‘It’s a growing phenomenon across the country, in places large and small that have never had condos before.’”

The Palm Beach Post. “The condo craze is over, developers declared here today. That may be hard to tell given the number of condominium buildings still under construction in areas like downtown West Palm Beach, but builders and developers attending the massive International Builders Show here said don’t expect that trend to continue.”

“Indeed, the race by builders and developers to satiate the perceived demand for condo units even had most of the region’s high-end rental properties converting to condos. But that all seem to came to a screeching halt last year, as a glut of units collided with a dearth of investor dollars.”

The Tampa Tribune. “The frenzied condominium building boom in Florida’s major cities appears to be slowing dramatically, and as a result some developers may scrap their plans while others shift to apartment construction.”

“‘We’re faced with having to pay these high land prices and construction prices and still build affordable’ units, said Steve Patterson, CEO of Orlando-based Zom Inc. ‘We’re going to have to push the limits on rents and accept bare minimums on returns.’”

“Many of the converted condos are sitting empty, and investors who fueled the conversion boom by buying up blocks of units are struggling to sell or lease them.”

The Herald Tribune. “Coast Bank is allowing customers to ‘re-title’ or reconfigure large-denomination certificates of deposit with no penalty. The large certificates of deposit, time deposits of $100,000 or more and often called ‘Jumbo’ CD, constitute about 25 percent of the troubled bank’s total deposits.”

“It is an unusual step and one taken to maximize the availability of FDIC coverage for the deposits, said bank analyst Jim Schutz. Re-titling is very rare. Schutz has only seen the move ‘a couple of times in my very, very long career.’”

“Schutz said that holders of Jumbo CDs are likely ‘wholesalers or broker deposits,’ meaning mostly New York financial institutions looking for high yields. ‘But that money is skittish and if there’s trouble, it will flee,’ said Schutz.”

From CNN Money. “Dave Corey has been flipping houses on the side for nearly 30 years, but the latest slump in the real estate market is taking its toll. His latest struggle: Unloading a ranch in Ocala, Fla.”

“He thought it would be a quick buy, rehab and sell transaction. Instead, it’s been buy, rehab…and sit. For 10 months. After paying $146,000 in January of 2006, he’s now out of pocket $160,000 including closing costs and renovations, he said. The list price of $178,900 has drawn zero interest.”

“A few years ago, Ocala was a hot spot for investors, mainly Northerners, according to Corey. Those buyers have flown back north. ‘I don’t see where any new investors are coming in,’ he says.”

“Corey got the current one directly from a builder so it didn’t need much work. With this kind of home, all he does is upgrade some of the features and amenities. But, by the time he was ready to sell, he could no longer get the price he wanted. ‘It sat for five or six months,’ he says ‘Nobody even looked at it.’”

“‘Inventory is so high, I heard they had 1,200 homes for sale in [a nearby subdivision] The Villages, it’s very difficult to buy and sell,’ says Corey.”

“Corey thinks he may have solved his problem, at least for now. He entered into a lease-with-an-option-to-buy transaction with a 30-something couple. They’re paying $1,200 a month, of which $200 goes into the down payment principal. They pay promptly and he expects them to follow through on the buy option.”

The Courier Post reports from New Jersey. “Anand Ramanathan was approaching the gas station where he normally fills up when he saw them, people dressed as dollar bills holding signs that said ‘Free Gas.’ ‘It’s a great thing, really,’ said Ramanathan, who chuckled at his good fortune as gas streamed into his car’s tank.”

“As hordes of drivers jockeyed for position at the pumps, they also got glossy, full-color advertisements from Beazer Homes, a national home builder that owns 10 residential developments in South Jersey.”

“The fact that companies such as Beazer Homes are offering incentives and, in some cases, doing it creatively to grab attention is a reflection on the state’s housing market, which cooled considerably in 2006, said Patrick O’Keefe, CEO of the New Jersey Builders Association.”

“The gas giveaway, it turns out, was Beazer’s kickoff to markdowns of another variety. Starting today and continuing through Sunday, the Atlanta-based company will give people who buy a Beazer home in New Jersey the opportunity to buy an upgrade such as a home theater, gourmet kitchen, finished basement or sun room for $1.”

“‘In recent months, we’ve offered greater incentives than in the prior three or four years,’ said Paul Schneier, president of Beazer Homes’s New Jersey division. ‘This is our best incentive yet.’ Beazer Homes saw new home orders fall nationally by 58 percent from 2005.”

“‘Two homes on my block have been up for sale for a while. In the past few years, they would have been sold by now,’ said Bobbi Ferrick of Collingswood.”

“Dave Butts, for one, hopes the region’s housing market rebounds, and soon. ‘I’d like to see it pick back up so I can sell my house and move out of the state,’ said Butts, who lives in Pine Hill. ‘I’m tired of the property taxes and high insurance costs here.’”

The Daily Times from Maryland. “James Shaw promised the sun and the moon and delivered. What he didn’t do was sell more than a few condominium units on the Crisfield waterfront before a sluggish national housing market hit bottom.”

“The fallout that followed landed the developer among civil cases in Harford County Circuit Court, where the Royal Bank America of Philadelphia in late January filed a confessed judgment against Shaw seeking $10.2 million to cover a construction loan and fees for the 23-unit Captain’s Galley condominium overlooking the Tangier Sound.”

“‘Everybody is offering incentives now; I did some of that, in Ocean City, units got $40,000 worth of furniture,’ said Thomas Monahan, a developer with projects in Crisfield, Salisbury and Ocean City. ‘But the market is coming around and I’m going to stop that. Market correction is over; prices likely are going up in the spring.’”

“At Captain Galley, units range between $400,000 and $1.2 million, and despite six sales since the development opened in August 2006, Shaw expects about a half-dozen contracts to close in the coming weeks. The money would generate revenue to push down the $10.2 million bank debt, he said.”

“A sluggish housing market last year stalled the fourth and final phase of the Harbour Light condominium complex in Crisfield, said Monahan. ‘Everybody got scared, paranoid,’ Monahan said. ‘Prices were rising so fast in 2004, 2005 and 2006.’”

The Gazette in Maryland. “Days before the first residents move into Rockville’s Town Square development, the project developer has taken more than a third of the development’s housing units off of the slumping condominium market, shifting them to rental apartments.”

“Having endured a year-long market slowdown, RD Rockville LLC has sold just 214 out of 644 units in Town Square, company officials confirmed last week.”

“‘When the condominium market was hot, everyone was saying this would sell out quickly,’ said Benjamin Harris Stonestreet, VP of construction for RD Rockville. ‘But there’s 644 condo units on this project. That’s a monumental undertaking.’”

“Until about a year ago, sales were clicking along, Stonestreet said. Throughout the summer of 2005, customers were buying condominiums at a brisk pace, basing their decisions on brochures they were picking up in a nearby sales trailer. Then winter hit and sales dropped. Company officials began banking on the post-holiday turnaround. Spring came and went and no such market shift occurred.”

“Now RD Rockville, like other condominium developers in the region, is offering incentives. Company officials confirmed that their sales representatives have given away free parking spaces that would have sold for $30,000 in a better market.”

“The condominium prices have not been lowered, company officials say. No rental prices had been set for the 200-plus rental units as of late last week. ‘All the analysts and experts say we should be leasing 15 to 20 units a week,’ Stonestreet said, before pausing to reflect. ‘I hope the experts are correct.’”

“The Town Square development is not the only construction project to suffer from the slumping market. In Montgomery County, condominium sales have declined from 2,050 in 2005 to 1,031 last year, according to William Rich, an expert in condominium markets.”

“‘In this case, I believe the developer is going to have to take a longer-term play than anticipated,’ Rich said. ‘He will have to possibly hold on to these units a couple years and then see if the conditions change.’”

“Last year, more than 13,000 condominium units throughout the Washington, D.C., metro area were taken off the market, according to Delta Associates numbers.”

“City and company officials downplay the import of the decision to rent hundreds of Town Square units. Markets fluctuate, they say, but the 12.5-acre, $352 million mixed-use development is too loaded with amenities to suffer the same fate of the last major redevelopment project in Town Center, the old Rockville Mall.”

“Referred to as the white elephant, the large federal urban-renewal project failed from the start, with its empty cornerstone buildings that stood glaringly vacant. Mayor Larry Giammo has repeatedly said the project failed because it did not account for market demands and how people lived.”

“Giammo and the City Council have bet heavily that Town Square will be different, roughly doubling the city’s bonding debt to pay for their end of the project. RD Rockville’s original plan called for only rental units, city officials say. At the request of the city, and encouraged by a rising market, the company eventually shifted the plan to 100 percent ownership.”

“‘We’re creating a downtown, a heart of a city where there used to be a blacktop parking lot,’ said Scott Ross, managing partner of RD Rockville.”

“Giammo downplayed RD Rockville’s shift to rental, saying it would not adversely impact the city. ‘I don’t see that as a setback,’ he said. ‘Right now the ownership market is in the tank, but the retail is still strong.’”

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