‘It’s Not Clear How Long Oversupply Will Last’: DC
The Washington Post has this update on the DC area. “A giant development company is withdrawing its offer to give a Virginia town an unprecedented amount of money in exchange for approval to build a subdivision, citing the cooling housing market for the change of heart. Centex Homes said it can no longer afford to offer Warrenton $22 million, almost half the town’s annual budget, to approve 300 luxury homes for seniors within its borders in Fauquier County.”
“‘It was possible to consider such [an offer] as remotely feasible only in a rising market,’ wrote Robert K. Davis, the company’s division president. ‘[We] would not have made that agreement had it been possible to predict the timing of the current residential downturn.’”
“Centex officials declined to comment beyond the letter. Warrenton officials said they will continue to negotiate with the company. ‘The tooth fairy brought us a lot of money,’ said John Lewis, a Town Council member.”
“Last month, Centex defended the concessions, which industry specialists called a bribe, saying they were the ‘cost of doing business’ in Virginia. In this week’s letter, however, Davis said the compromise would be an untenable loss because it ‘represents a 56 percent decrease in the potential yield of the property.’”
“The outlook for home sales has changed in recent months. Home prices in the Washington area declined this summer for the first time in five years, and some economists predict that the trend may deepen in the coming years.”
The Washington Times. “Strong demand for rental housing in the Washington area is making developers who switched their apartment buildings to condominiums during the red-hot real estate market rethink their business strategies.”
“About 25 percent to 40 percent of the housing units being built as condominiums instead will be sold as apartments in the next 18 months, according to Marcus & Millichap. In addition, some apartments that were converted to condos are likely to be switched back to rentals.”
“The cooling market is creating concerns among Washington-area real estate developers who were betting their investments on condos. ‘We have clearly entered a period in which the supply of condominium housing exceeds demand, particularly in certain submarkets where significant development has occurred over the last two to three years,’ said David DeSantis, for developer PN Hoffman. ‘It is not clear at this point how long the oversupply condition will last.’”
“Other developers do not want to wait for their condominium markets to improve, preferring instead to auction their projects to the highest bidder. ‘We’ve noticed a definite surge in calls from developers in the D.C.-Baltimore area who are looking for a way to sell units they thought would be long gone by now,’ said Carl Carter, of J.P. King Auction Co. ‘Some tell us they’re being hurt by ongoing costs like interest, taxes, maintenance and marketing costs they didn’t plan for.’”
“Some of them built condos thinking they would sell promptly but did not plan for a slumping market. ‘Now they want to stop the bleeding, recover their investment and move on to the next opportunity, and an auction lets them do that,’ Mr. Carter said.”
“The outlook for home sales has changed in recent months. Home prices in the Washington area declined this summer for the first time in five years, and some economists predict that the trend may deepen in the coming years.”
More reason for the homebuilder share prices to rally come Monday, I suppose?
‘[We] would not have made that agreement had it been possible to predict the timing of the current residential downturn.’”
With all of their economic forcasting ability - could these moron’s really only believe that prices only go up forever? Should they not be able to forcast a 2-3 year model?
Do they only employ 20 -25 year olds like the televison (Fox) industry that know what everyone wants to view?
Person has $450K to buy 1900sqft home here in Phoenix for $450K. Same home for rent next door for $1200/mo. Property taxes = $3000, HOA=$100/mo
Let’s do the math for rent: 450K in a FDIC insured callable on 7-28-2008 at par and semi-annually thereafter with a 15year CD = 6.5% = $29,250/year
Rent=1200×12=$14,400
Profit after renting = $29,250-14,400 = ++$14,850/year profit in your bank account. After 5 years you would have a GAIN OF
$74,250!!!
Let’s do the math now for buying: $450K to purchase it so automatically you are down $29,250/year of the money not working for you earning 6.5% interest
Loss from buying/year=$29,250+(HOA:$100×12)+(Taxes:$3000)-(rent:1200×12)=$19,050/year LOSS!!! After 5 years that would be a LOSS of $95,250.
That means that the equity in your home would have to RISE each and every year $19,050 or about 5% just to keep up with the renter.
What do you think guys??? Would property values continue RISING 5% a year from here on out?????
CONCLUSION: Anyone who is buying real estate right now at these wacko bubble prices is… OUT OF THEIR PHAKING MIND!!!!
and you also save because you won’t buy as nice furnishings and you don’t have to worry about replacing a roof or anything else.
why is it so hard to make this simple calculation? why are people so stupid concerning their largest purchase?
You saw it here first! I wrote about that Warrenton seniors’ development on this blog when the papers were gloating about it three short weeks ago, and I put out the numbers for the fact that there was already a 12-month supply in that price range. I was getting ready to write a letter to the editor saying Fauquier County had better not count on that money to fund our pool. Argh.
73K a pop in impact fees !
this is out in the boonies
off 8% in 22151 so far
peak 6/05
Straight up normal development fee schedules for my neck o’ the woods. Don’t get me wrong, they are flat out bribes just the same. Only difference being the mob publishes a price list here.
DITTO here Cote;….Gotta keep all those salaries and pension’s clicking…..City manager here makes 260K….Probee fire fighter starts right @ 90K….Buddy of mine retired from the engineering department (basically a design engineer)…He’s kicking back on $115K (plus 100% medical) a year and he is 52 years old….Notta bad gig….
and just think, for all that we get nothing, nothing I tell you!
who needs a fire dept? everyone has plumbing!
Now John, we are talking fees, not taxes. California has entered an era known as zoning for dollars. In it we ream new residential construction and then tax the bejezzus outta em. The money is used to subsidize retail in anticipation of sales tax revenues.
Slightly OT, but the oversupply of 4BR+ homes in SD is growing. ZipRealty shows current used home inventory at 5105, with 200+ new listings in this category since 8/1/06. And this does not account for the many Craig’s listings, FSBOs, new homes under construction or recently built but not sold, and the sizable hidden inventory of temporary rentals until price appreciation makes them worth selling (like the home we live in, and the one across the street, and the one kitty-corner across the closest intersection, and …).
‘Strong demand for rental housing in the Washington area is making developers who switched their apartment buildings to condominiums during the red-hot real estate market rethink their business strategies.’
Oh really? It isn’t the fact that they can’t sell these conversions? And at what many of these converters paid, they will be losing money on rents. Should be some apartment foreclosures in DC shortly.
Here is the part that got cut off in the first posting:
‘Other developers do not want to wait for their condominium markets to improve, preferring instead to auction their projects to the highest bidder. ‘We’ve noticed a definite surge in calls from developers in the D.C.-Baltimore area who are looking for a way to sell units they thought would be long gone by now,’ said Carl Carter, of J.P. King Auction Co. ‘Some tell us they’re being hurt by ongoing costs like interest, taxes, maintenance and marketing costs they didn’t plan for.’
‘Some of them built condos thinking they would sell promptly but did not plan for a slumping market. ‘Now they want to stop the bleeding, recover their investment and move on to the next opportunity, and an auction lets them do that,’ Mr. Carter said’
If you don’t do your homework you can overpay at a auction . The builders are just hoping and praying the price goes way above their high mim. bid .
The pain in DC is only beginning. There are literally thousands of condo units coming on to the market in the next year or so. I’ve already seen offers indicating that they would “transfer” over unfinished units at the 2004 original price. The whole market is operating off of continual appreciation. Once it becomes part of the psyche that prices are declining all bets are off.
I laugh only because I watched the Baltimore Condo market slump so bad in the ’90’s that they the Colonnade/DoubleTree had to offer his and hers BMW’s to the purchaser of the vacant penthouse unit, and still no takers. I wonder how good the incentive offers will get in DC as the market starts to fall preciptiously.
I laugh to keep from crying as I contemplating having to sell my own condo in the DC area.
BTW, I loved your podcast interview with Scott at Money Blogger Podcast.
Yea, that was a pretty good interview, although Ben’s attention span can use some work. I don’t know what was funnier that or Ben’s attempt at modesty and not taking credit. Ben the accolades are well deserved embrace them. You deserve it.
I’m sure Centex has bitched and moaned about regulations, zoning and environmentalists. they probably said “we’re running out of land.” then this happens. same thing with Vegas and the BLM aunction.
Well, land *is* rather difficult to come by in Fauquier. It’s draconian out here. Very NIMBY. The neighboring county (Rappahannock) has a smaller population than during the Civil War, and they whinge about anyone creeping over their border. They made a lady cry at a public meeting - she has a great private agricultural school going and they wouldn’t allow the zoning, partly because the road is awful, and they certainly don’t want a good road or slimy *people* might want to live there.
Good thing, though, that Loudoun and Prince William have gobs of flat land, and the landowners in the former beat the system temporarily with a judgment from the Commonwealth of VA over the Nimby County government.
One thing I’ve noticed, thankfully, is that the land prices in Fauquier are actually coming down at a fast clip. The County re-assessed everyone this January at “fair market value” and stuff is selling for 10%-20% below that. (Actually, nothing’s selling, but asking prices are that much below the “fair market” assessment).
I used to live in Bealeton Just to the south of Warrenton. I used to pay 500 a month in gas for my commute into Fairfax - 2 cars 2 commutes- now multiply that by 2 and that is the current gasoline bill. We all bought 4 bedroom houses out here in the hinterlands because in Fairfax THs were the only option at 300k.
I sold in 2004 and my house has been flipped twice. Currently it looks like there are renters in the place and weeds are growing in the front lawn.
Interestingly, the paper blinds I bought at home depot are still up in the windows. We coudn’t afford the poper window dressing and I guess the the next couple of crops of owners coudn’t either.
Aquia Harbor is another community 40 miles south of D.C. and in the boonies. I drove through there Sat. and it looked like there was a for-sale sign on every other house.
….every fourth house.