After Inflated Activity, A Little Breathing Room
A report from Seattle PI on Washington. “It’s a buyer’s bonanza! Well, not quite yet but it we’re rolling briskly in that direction. For now, Seattle’s condo market is a bit of a contradiction, at least in August with skyrocketing inventory along with rising values. Inventory rose an incredible 161% over the same period last year, reflecting 470 Seattle condo listings for sale last month. That was also 16.6% more than in July. Historically, we’d normally see inventory taper off by now.”
“With the spike in listings and tempered sales, the inventory supply rate increased to 2.2-months of supply. That’s significant for two reasons. First, it is the first time in five years that the supply rate surpassed 2 months of supply. Second, the supply rate is an indicator of market condition with a sellers market having 3 months of supply or less and a normal/balanced market between 4 to 6 months of supply. Last month, we were half way towards a balanced housing market.”
‘That’s based on MLS listed properties. In reality, it’s a little higher as there are non-listed new construction units for sale that’s not accounted for in the officially published NWMLS statistics. There were 210 pending sales transactions (listings with accepted offers), reflecting a one-year decline of 34.6% and a one-month drop of 11%. As with pending transactions, the number of closed condo sales also declined, reducing 14% year-over-year and 9.4% from July.”
From Globest on Texas. “Construction in the Dallas-Fort Worth TX metropolitan area retreated 23% during the first half of 2018 from a year ago, as a 7% increase for multifamily housing was outweighed by a 36% drop for commercial building, according to Dodge Data & Analytics. For the full year 2017, commercial and multifamily construction starts had fallen 12%, which followed very strong increases in 2015 (up 60%) and 2016 (up 28%).”
“‘Commercial construction may have seen a decrease in the DFW area, but we have only seen continued growth in the multifamily sector, specifically in the size of the projects that we’re seeing,’ Brian Webster, KWA Construction president, tells GlobeSt.com. ‘2017 was KWA’s best year on record, and with numerous high level projects in the pipeline, we are already on track to surpass that this year.’”
“The commercial building total during the first half of 2018 recorded a substantial decline for new office starts, down 52%, as well as weaker activity for hotels (down 56%), commercial garages (down 55%) and retail (down 14%).”
“‘After the huge mega-projects we just finished such as the Toyota and CityLine projects, which led to inflated activity, we needed a little breathing room,’ Dana Walters, vice president of business development, MYCON Construction, tells GlobeSt.com. ‘That’s natural. This is an untested cycle where everyone is trying to predict what will happen. There are thousands of jobs coming in every month, stretching us out to the suburbs. Tertiary markets are becoming primary markets.’”
“Metropolitan areas showing decreased activity for commercial and multifamily construction starts during the first half of 2018 in addition to Dallas-Fort Worth ($3.4 billion), were Los Angeles ($2.9 billion), down 38%; San Francisco ($2.8 billion), down 38%; Chicago ($2.7 billion), down 37% and Atlanta ($2 billion), down 43%.”
“‘Multifamily housing has proven to be surprisingly resilient so far during 2018, following its 8% decline in dollar terms at the US level that was reported for the full year 2017,’ says Robert Murray, chief economist for Dodge Data & Analytics. ‘With apartment vacancy rates beginning to edge upward on a year-over-year basis, banks had been taking a more cautious stance towards lending for multifamily projects.’”
From The Oregonian. “Price drops on gilded 1882 Italianate mansion. The gilded Italianate mansion has captured attention since the day it was built in 1882 for a wealthy Portland shoe merchant. Original owner Morris Marks lived under gold-leaf ceilings and frescoes. The property is for sale at $1,995,000, a drop for the original asking price of $2.75 million.”
‘Metropolitan areas showing decreased activity for commercial and multifamily construction starts during the first half of 2018 in addition to Dallas-Fort Worth ($3.4 billion), were Los Angeles ($2.9 billion), down 38%; San Francisco ($2.8 billion), down 38%; Chicago ($2.7 billion), down 37% and Atlanta ($2 billion), down 43%’
That should free up a few construction workers, etc. There’s not been much follow up on the collapse in downtown San Francisco.
Here’s a glimpse in the rear-view mirror. Enjoy!
“Modern Civilization: This Sucker Is Going Down” — April 29, 2010
https://dailyreckoning.com/modern-civilization-this-sucker-is-going-down/
” … without containing any really $eriou$ or forceful propo$als to di$cipline a banking sy$tem that is running a ho$tage-and-ran$om racket on civilization.”
They$ can $elf.regulate$ them$elve$, tru$t them, alway$, no over.$ight$ needed what.$o.ever!
+1 Bankers can walk on water!
“That should free up a few construction workers, etc.”
And put deflationary pressure on wages, lead to fewer $75k truck sales, weaken demand for materials - gee, it’s starting to sound recessionary.
“…lead to fewer $75k truck sales…”
Ahem… the football season just started.
‘That’s based on MLS listed properties. In reality, it’s a little higher as there are non-listed new construction units for sale that’s not accounted for in the officially published NWMLS statistics’
How much higher? Who knows? Heck hardly a day passes without an apartment tower going condo.
The Shift from Building Apartments to Building Condos
seattlepi.com (blog)-Sep 7, 2018
There have been several recent announcements about new condominium buildings being constructed in Seattle. For the last few years, the only residential …
Condos are suddenly worth the risk as the apartment market cools
Puget Sound Business Journal (Seattle)-Sep 7, 2018
Several condominium towers are going up in downtown Seattle and Bellevue and more projects are planned on both sides of Lake Washington. Early plans …
Seattle home prices drop by $70000 in three months as market …
Seattle Times-Sep 7, 2018
Home prices are continuing to fall across an unseasonably cool Seattle real … During that same period the inventory of Seattle condos skyrocketed 161 percent.
Planned Seattle skyscraper will be built as condos, developer says
Puget Sound Business Journal (Seattle)-Sep 6, 2018
The developer of a 500-foot-tall mixed-use tower in downtown Seattle says the residences will be built as condos….
So are they building new condos or converting existing luxury rentals to condos? If they can’t find renters for the apartments then how will they find buyers for the condos? Are they still chasing the same tiny pool of wealthy snowflake millennials? Those hipsters are now 36 and looking for SFH for the young family.
Well… not really. Not at all. Population growth is at record lows and falling as 10,000 boomers a day step into the coffin.
“non-listed new construction units”
This is rampant in LA, especially downtown but also new luxury developments in Weho, Century City, etc. A huge new tower just completed downtown will have only a handful of units listed on the MLS. Nevermind the huge new tower next door doing the same thing. And the one going up across the street.
The ultra-luxury buildings further west also list only a small number units, but they all have the designation “sale pending” from the first second they are posted. Sure.
On top of that, I suspect some buildings circa 2007-9 (especially in Hollywood) are only now listing units for sale for the first time (and at prices that undercut recent buyers). Did they have inventory loans back then too?
And then on top of that, people who bought off-plan condos back in 05-09 for outrageously high prices (again, especially in Hollywood) have been stuck with them all this time. They only started to have a window to get out this year during the blow-off top, so they’re listing too. How many of these were never lived in or even rented out?
Then there’s the small-scale developers who tore down one house to build a mcmansion who list, pull, and relist. Individually it doesn’t make much difference but collectively it makes inventory numbers even harder to judge.
So there’s a lot of legacy new construction inventory that has been hidden for years not even counting the stuff built in the rebubble and still being built right now.
Denver, CO Housing Prices Crater 10% YOY As Weak Homeowners Seek A Way Out Of Underwater Housing
https://www.zillow.com/denver-co-80230/home-values/
Inventory rose an incredible 161% over the same period last year, reflecting 470 Seattle condo listings for sale last month. That was also 16.6% more than in July.
Soaring condo inventories, followed by cratering sales and prices, were leading indicators of the last housing bubble bust, too.
What’s the technical term for that? Condoplosion?
Condoom.
It’s what naturally follows Condomentum and Condomania.
da bear
Sooner or later it is
condotus interuptis
Last month, we were half way towards a balanced housing market.”
We won’t have a “balanced” housing market until prices fall to the historic (affordable) norm of 3X median income. The median income of middle and working class Americans isn’t looking so hot these days.
‘That’s based on MLS listed properties. In reality, it’s a little higher as there are non-listed new construction units for sale that’s not accounted for in the officially published NWMLS statistics.
Is the NAR fudging the data to try to conceal how dire the picture really is?
One of the reasons was that ‘investors’ and ‘accidental investors’ were renting out units. With the huge amount of supply coming online end of last year and this year. this will change.
For instance in my condo building we were supposed to have a 30% ceiling of renters. However, in 2010-2012 downturn this was not enforced. We are just lower than 50% even now and it is a very nice building.
An acquaintance in the building is moving to the Bay area with his company. He however is going to hang on to his unit and rent it out with a management company.
“With the spike in listings and tempered sales, the inventory supply rate increased to 2.2-months of supply. That’s significant for two reasons. First, it is the first time in five years that the supply rate surpassed 2 months of supply. Second, the supply rate is an indicator of market condition with a sellers market having 3 months of supply or less and a normal/balanced market between 4 to 6 months of supply. Last month, we were half way towards a balanced housing market.”
The above is referring to downtown Seattle.
“An acquaintance in the building is moving to the Bay area with his company. He however is going to hang on to his unit and rent it out with a management company.”
This is called “riding the market to the bottom.” Hello foreclosure.
Has that been a problem for new buyers getting a mortgage to buy in your building? Banks get picky about lending in buildings when the percentage of renters gets near/over 50%.
At least here in Seattle, it was only for new condo buildings that were still in process of selling - which is why there was a 30% rule. Our building sold out in 2010 - i was one of the last.
With the 2010-2012 downturn, the association did not enforce this rule. I have not heard that this is a problem - but could be very wrong
It would show up in the resales as a “back on the market”/ “buyer couldn’t perform” type thing.
I’m curious - what was the board’s rationale for not enforcing the rule during the downturn?
I thought certain mortgage underwriting had guidelines for the percentage of a condo building rented (new or otherwise). I can’t remember what type of loan had this requirement.
there was not an official decision about exceeding the rental cap of 30%.
Owners were suffering - in back to back HOA meeting there was loud/outspoken comments from owners about impact to them.
Basically, if they could not rent, they would lose a lot of $s. Give the state of the market (especially for the folks that bought in 2008) they relented and did not enforce the cap.
Thanks for the reply. There are so many condo board shenanigans all over and the bubble has done a lot to cover it up. It seems the downturn had a similar effect.
Odd that so many people who presumably bought condos to live in suddenly had to rent them out right away.
‘That’s natural. This is an untested cycle where everyone is trying to predict what will happen.
No, it’s not natural. It’s a bubble where developers used ultra-easy credit to go on a speculative building binge. Now comes the part where said developers and their lenders start to realize they’re never going to recoup their costs, must less turn a profit. Then come the five stages of grief.
As far as predicting what’s going to happen, I suggest watching “The Big Short.”
Untested is a strange thing to say.
‘For the full year 2017, commercial and multifamily construction starts had fallen 12%, which followed very strong increases in 2015 (up 60%) and 2016 (up 28%)’
So right after huge increases, huge decreases.
‘The commercial building total during the first half of 2018 recorded a substantial decline for new office starts, down 52%, as well as weaker activity for hotels (down 56%), commercial garages (down 55%) and retail (down 14%)’
Where is Diane on reporting this? Does CNBC only do uplifting Mom and Pop shack stories?
Diane and CNBC wouldn’t want to antagonize their corporate sponsors by truth-telling, now, would they?
Diane Mouthpiece is waiting for her next script from NAR.
Her mouth might be, uh, “occupied” right now.
I’m sure we’ll hear about it in a few months/years, i.e., “Oh poor me, I was paid to lie and whore myself out and made tons of money doing so but now that that’s all dried up (along with my face) I really really regret it.” #metoo
Heh…. I like it.
Diana?
I believe they are referring to Diana Olick.
Yes.
Another major issue is Seattle operation costs.
Not trying to have anyone feel sorry for me - but mentioning to prove some context. I have (nice) >1200 sq ft condo unit in a nice building in Belltown.
So even though my unit is ‘payed’ for, the annual nut from property taxes and HOA fees is greater than $17K/year. Given rate of increases from previous years, (and the seemingly unending need of Seattle City / King County and ‘owners’ in our complex to increase spending), i estimate i will be at $20K in 2020.
We are thinking about what we need to do next. Paying this nut for the next 30 years doesnt make sense - even if we love living in downtown Seattle.
“It’s a buyer’s bonanza! Well, not quite yet but it we’re rolling briskly in that direction. For now, Seattle’s condo market is a bit of a contradiction, at least in August with skyrocketing inventory along with rising values. Inventory rose an incredible 161% over the same period last year, reflecting 470 Seattle condo listings for sale last month. That was also 16.6% more than in July. Historically, we’d normally see inventory taper off by now.”
We are thinking about what we need to do next. Paying this nut for the next 30 years doesnt make sense - even if we love living in downtown Seattle.
You live behind enemy lines, in a municipality occupied by a “progressive” administration and its Free Sh*t Army voting bloc with one unwavering agenda: “Redistribution of the wealth” from the makers to the takers, along with fostering dependency and parasitism to ensure the progressives maintain and expand their political entrenchment.
Seems like your course of action would be crystal clear: refuse to be a cash cow for the takers in a city that has no future.
$20K in 2020
$1666/month. That’s flat out insane. You have a paid-off condo and still, you are paying *more* than my entire PITI. It defeats the purpose of having a paid-off dwelling.
Is the dog-wash station and craft beer and “vibrant” grunge music worth it?
You’ve been bamboozled. You don’t even have a mortgage and you’re paying people $1,600 per month for the privilege of “owning.” NEWSFLASH: You don’t own chit except for an infinite payment to leaches.
“You don’t own chit except for an infinite payment to leaches.”
Leaches? Lenders allow for the wildest dreams of these pukes to come true (sort of) and are SO GRATEFUL to the lenders for allowing this miracle to be materialized and you - YOU! - refer to them as leaches.
[so I was afraid of this. providing circumstances seems to bring out a little anger]
Yes, when we bought this condo in 2010 (depths of the downturn in Seattle), we got in at a good price. We knew what the HOA and taxes were and made a medium term decision that it was worth Since then HOA spending and taxes have accelerated. We will figure out when to move.
The purpose of the original post was to indicate that there will always be cost issues with condos in Seattle.
Sorry, that probably did come out wrong. You are correct to want to move. What’s insane is that HOAs are getting away with three-figure monthly fees.
If you are paying that much without a mortgage, imagine those that brought recently…how much are they paying with a mortgage. Oh well, it’s a choice where people want to live. It’s not up to me to tell them where to buy or when to sell.
i sit on the condo association finance committee. It is scary how many owners are so close to the line. I see the spreadsheet (by condo unit) not by name.
You can tell when owners give up - not paying condo fees for several months until they get into the legal process. In WA state, it (perversely) makes more sense to be more behind schedule so that the payment plan (in line with your income) is less
The bubble doesn’t live in a bubble
This is the concept that seems to be lost on lots of bubble apologists. When the bubble pops in cities, then construction plummets and real estate sales plummet. That’s a whole lot of income that normally supports workers and their families. So, that’s less eating out, less auto purchases, less vacations, less everything. Less consumption. And in a vicious negative feedback loop, all of those affected secondary industries now have less revenue and the respective employees have a harder time affording housing. It is an unstoppable force that spreads like infection.
You forgot HELOCs. HELOCs allow a lot of spending of cashed-out equity, equity that would not exist if bubble prices were to vanish.
Bothell, WA Housing Prices Crater 5% YOY As Confidence In Seattle Area Housing
Market Collapses
https://www.movoto.com/bothell-wa/market-trends/
This bubble popping is about to get a lot worse on the southeast coast. Hurricane Florence is barreling toward Wilmington/Charleston in the Carolinas.
Meanwhile, the cryptocurrency bubble continues to implode.
https://www.bloombergquint.com/business/2018/09/10/crypto-wipeout-deepens-to-640-billion-as-ether-leads-declines#gs.8C_hMys
Remember that clown Joe who showed up here at the peak, bragging about his tens of millions in “crypto” and how he had moved heavily into “Ether?” I certainly don’t believe he ever had tens of millions, but I would bet whatever he did have has been mostly wiped out. He “wasn’t selling” at the time.
Casey Serin was also publicly all in on crypto a few months ago and has now disappeared off the face of the earth.
He’s probably Cryptomining you as I type
Cryptocurrency “investors” are crying the blues as the first bubble mania implodes. It won’t be the last.
https://wolfstreet.com/2018/09/09/cryptocurrency-mania-collapse-update-672-billion-gone/
Crypto-Mania Collapse Update: $638 Billion Gone
It’s going to ZERO. Imagine the carnage then, since it’s still at nosebleed levels….
3 Reasons To Worry About The Housing Market
ANTHONY MIRHAYDARI
CBS News
Sept. 10, 2018
Demographics
“Millennial homeownership rates are still poor, mired as they are with student loan debt and tepid wages.”
“According to the Urban Institute, the homeownership rate of millennials between the ages of 25 and 34 is about 8 percent below Gen X and baby boomers at the same age. If millennial homeownership matched previous generations, there would be 3.4 million more homeowners today, they estimate.”
“The risk is that the longer this generation delays homeownership, the more baby boomers looking to downsize will be pressured into lowering their home prices when they enter retirement.”
“Indeed, a study by Fannie Mae’s Economic and Strategic Research group warns of a “mass exodus” on the horizon as the “homeownership demand from younger generations is insufficient to fill the void left by multitudes of departing older owners.”"
https://www.cbsnews.com/news/3-reasons-to-worry-about-the-housing-market/
“The risk is that the longer this generation delays homeownership, the more baby boomers looking to downsize will be pressured into lowering their home prices when they enter retirement.”
That sounds terrible. But perhaps rather than “inflated boomer house prices that must fall” being an unfortunate side effect, maybe that’s actually a root cause of the mismatch between the generations?
There’s a geographic mismatch too. No millenial wants to buy a paid off 3/1.5 ranch in some rotting factory town in Wisconsin or Pennsylvania. Boomers who settled in Austin or Denver will hit the jackpot.
“Millennial homeownership rates are still poor, mired as they are with student loan debt and tepid wages.”
Millennials are the biggest debt donkeys on the planet, with boomers running a close second.
I’m wondering how long until all the personal toys start going on sale - boats, sports cars, RVs, motorcycles, etc. It’s been 6+ years of relentless price appreciation and low inventory of such items in the used space.
that clown Joe who showed up here at the peak, bragging about his tens of millions in “crypto” and how he had moved heavily into “Ether?” I certainly don’t believe he ever had tens of millions, but I would bet whatever he did have has been mostly wiped out. He “wasn’t selling” at the time.
I would imagine it is going to start the moment we get an economic hiccup. I ran by the mammoth boat storage facility on my nightly run. I see so many nice boats there and they are used so infrequently, if at all.
I’ve been staring at the neighbor’s RV Trailer across the street… blocks my view of the hills. No extension cord yet, so nobody is living in it. Labor day is over, so it should be off the street before the snow. I really wish some kids would tag it.
North Bethesda, MD Housing Prices Crater 10% YOY As Escalating Federal Layoffs Scorch NoVa/DC Housing Market
https://www.movoto.com/north-bethesda-md/market-trends/
How many Chinese loaded up on loans from peer-to-peer (p2p) lenders, then absconded to Vancouver or San Francisco to buy a shack with their free money haul, leaving their “peers” holding the bag?
https://wolfstreet.com/2018/09/09/implosion-of-chinas-p2p-lending-boom-hits-consumer-spending/
or Seattle or Irvine or XYZ City….
By the end of June, in a little over two years, the industry had gone from zero to $190 billion in outstanding loans.
That was the peak. But the fun didn’t last long. Borrowers defaulted on their loans or just absconded with the money, and the platforms began collapsing. In May this year, regulators stepped in. By the end of July, 4,740 P2P lenders had collapsed or where shut down
This is a great article, thanks randy! It seems that these P2P loans appealed to auto loans but timeline wise they seem to work into the real estate boom timeline with foreign investments too, wonder if they found a loop hole that allowed them to stack up these loans for RE?
Pleasanton, CA Housing Prices Crater 19% YOY As US Population Growth Hits Record Low/b>
https://www.movoto.com/pleasanton-ca/market-trends/
Bellevue WA - across L.Washington from Seattle. Good location in downtown Bellevue
#202 – $1,098,880 for a 1,191 square foot three bedroom with 2 bathrooms
20% down results in:
- Principal and interest $4428
- Property Tax $918
- HOA Fees $774 - this will go up significantly when the building is 80% full. I estimate $1130 ($0.95/sq ft / month)
- Insurance $201
So 918+774=$20K/year. When it gets to 80% occupancy and the builder does not dominate the HOA, it becomes $24.6K / year.
Have fun boys and girls
https://www.urbnlivn.com/2018/09/07/mira-flats-pricing-854-to-992-a-square-foot/
Seattle is finished. The prices are stupid high. Most of the transplants who have had a major hand in running them up cannot handle the weather. It’s not the rain, it’s the incessant cloud cover that makes them want to draw a warm bath and open up a vein. For that reason, it’s never going to be THE place that people want to live.
Further, it’s not just transplants. There are natives who can’t handle the dreary either. Some go into a massive depression heading into fall and winter, and don’t emerge from it until late spring.
“It’s not the rain, it’s the incessant cloud cover that makes them want to draw a warm bath and open up a vein. For that reason, it’s never going to be THE place that people want to live.”
My sister and her husband both had great jobs in Seattle, but my sister, a sunny California native, couldn’t stand the overcast weather any longer. Now they’re fighting for their financial survival in the Napa, CA area. Average jobs, a powerful earthquake, huge fires, high utilities costs, etc., but she still clings to her emotional relocation decision.
it’s the incessant cloud cover
No wonder the Chinese like the PNW. I’ve noticed in my apartment complex you don’t see Chinese people around all day and as soon as the sun goes down suddenly they are everywhere.
About what I was guessing the per sq ft other day… and there’s no deduction for HOA fees on top the construction defects.
I’ve been seeing elsewhere like Seattle reddit people calling out the switch from apartments to condos as due to the slowdown and the builders needing to sell the property as their exit strategy… The more word of that gets around, the faster it’ll get people calling these way overpriced.
Everybody has been calling them overpriced forever.