The Housing Bubble

The Bellingham Herald reports from Washington. “Three years of escalating home prices, low housing supply and multiple offers finally came to an end last year in Whatcom County, prompting home buyers and sellers to ponder what it all means for 2007. (Realtor) Mike Kent said the number of days a home is on the market is still over 100, compared to the 18-day average seen in the summer of 2005.”

“‘Price is the critical component in this kind of market,’ Kent said. ‘If someone is selling a home to try and get as much profit as they can, the home will sit.’”

“What will be a challenge are homes in the $350,000 to $500,000 price range, where an oversupply exists. At the end of 2006, Coldwell Banker estimated the county had a seven- to nine-month supply of used single-family homes in that price range, and an eight- to 12-month supply of new homes.”

“‘What slowdown there is will be felt in that middle price range,’ Kent said. ‘Right now there are a lot of choices, so buyers can afford to be patient and pick the best situation for them, instead of just jumping at the first home they are comfortable with.’”

“Even for the homes expected to sell quickly, sellers are making adjustments for the changing market. Nate Button sells new homes in the King Mountain area of Bellingham that are generally under $300,000. Button said they are selling what is getting built, but he’s not seeing the multiple offers of a couple of years ago.”

“‘We make sure we do a lot for this price range, because we know there are more homes on the market,’ Button said. ‘It usually means adding more features.’”

“‘It may feel unusual because we haven’t seen it for a while, but this should be a normal year,’ said (realtor) Gragg Miller. ‘It is more like the market was in the late 1990s, before prices started jumping. The bottom hasn’t fallen out of this real estate market, but we won’t be going back to the high demand seen in the past few years, either.’”

“In the past three years, Whatcom County has seen a surge in condominium construction. These new units have been selling to people who want a second home, a rental investment or a place where they can move in a few years as they retire.”

“In the newer condo buildings, such as the Harris Square buildings in Fairhaven, only about 30 percent of units are owner-occupied. All the condo units were sold in 2005 as the building was being completed, said Troy Muljat, who partnered with Andre Molnar to build Harris Square.”

“‘The number (of absentee owners) is a little higher than we thought,’ Muljat said. ‘In this latest real estate market, there were a significant number of people who were buying a second or third home as an investment, with the plan that they will move up here a few years from now.’”

“In Bellingham, a little more than half the condo units have absentee owners, according to statistics gathered by First American Title of Bellingham. The absentee owners will use the unit themselves for part of the year, keep it empty until they are ready to move in or rent it out.”

“In comparison, only 17.8 percent of residential homes have absentee owners.”

“Gary Tice, a senior loan officer at American Home Mortgage, said the number of owners who live in a condo year-round is one of several things a bank will look at that’s different from a single-family home applicant.”

“‘In general condominium financing is a different animal than a regular home loan, and it can make it more challenging for the applicant,’ Tice said. ‘If it’s a new condominium project, they might have fewer choices for them. For example, they might qualify for an ARM (adjustable rate mortgage) rather than a 30-year fixed rate.’”

“Ken Gustafson said he has seen plenty of out-of-the-area buyers interested in the more expensive condominiums. He recently sold a condo unit above Village Books for $1.2 million, the highest price paid for a condo in Whatcom County. ‘They may not be ready to come here for a few more years, but they are planning ahead,’ Gustafson said.”

“Muljat, who originally intended Harris Square to be high-end apartments before he saw an opportunity to sell as condos, is keeping the original plan with nearby McKenzie Square. Those apartments are available to rent next month.”

“‘We wanted to retain McKenzie Square as a long-term investment, so we had no plans to turn them into condos, but we also realized that there are many more (condos) out there now,’ Muljat said. ‘It made more sense for us to change Harris Square into condos, before there were many more new ones on the market.’”

The Bend Bulletin from Oregon. “Downtown Bend’s budding forest of tall buildings seems destined to sprout some new shoots over the next couple of years.”

“Along with the two new buildings rising at 919 and 1051 Bond St., plans are still under way to build a new five-story complex over the site of the old City Center Motel on Franklin Avenue, and to build a pair of buildings over the rubble that surrounds the Bend Brewery Co. building on Brooks Street.”

“Two more projects, led by separate development groups, are on the drawing boards for the downtown area’s fringes. But, given the high prices for downtown land and the high price of construction, their economic viability may depend on a single factor, the health of the residential condominium market.”

“The reason: Selling parts of a building to condo dwellers is the only way, in most cases, to offset initial building costs to the point where ground-floor retail and midfloor office leases can generate a profitable income stream. In other words, as Bend Realtor Norma DuBois puts it, ‘It’s the only way you can make it pencil.’”

“So how is the market for urban condos, a relatively new market for Bend and Central Oregon, holding up? Results, so far, seem to be mixed. In Franklin Crossing, buyers lined up to snap up reservations on the buildings eight top-floor condominium units last spring, despite prices that ranged over $1 million, DuBois said.”

“But the market changed over the summer, and so did Franklin Crossing’s fate. Reserved buyers melted away from five of the building’s eight units by the end of 2006, DuBois said, leaving only three sold so far. The remaining five units, priced between $450,000 and $1.1 million, account for about $3.25 million in inventory at current listing prices.”

“Whether the pace will pick up, DuBois said, is anyone’s guess. Bend’s housing market has gone flat, along with most of the nation’s. ‘The urbanization we are seeing here is so unique to a community of this size, I think we’re just going to have to see some more inventory and see how that goes before we’ll really know,’ DuBois said. ‘No guts, no glory.’”

“Franklin Crossing is about to get some company. The 919 Bond building will add as many as nine residential condo units to the downtown mix by the end of the year, said Jeff Pickhardt, one of the project’s partners. But the developers are hedging their bets, configuring the building’s second floor so it can be used for either offices or condos, depending on market demand.”

“After 919 Bond, the floodgates could open. A project on Broadway would bring 45 condos on five floors, according to plans the backers brought to a preliminary planning meeting in City Hall last month. A second project on Wall Street, would bring another 15 condos to the downtown’s northern fringe, if the project can squeeze through the city’s height restrictions, developer Mike Wilhite said.”

“The Plaza, a purely residential condominium project, has moved 12 of its 42 units so far, owner and Realtor Becky Breeze said, at prices ranging from around $600,000 to nearly $2 million, although the building won’t be move-in ready until June.”

“The buyers have come ‘from all over the country,’ Breeze said. About half are planning to use their units as primary homes. The other half are second-home buyers.”

“In Bend, some developers are dialing back. DesertScape LLC President Craig Glazier said his group has shelved plans for a new mixed-use building on the lot on Bond Street, although it has already demolished the building that stood there before, partly in response to market conditions.”

“‘We’re not worried that things aren’t gonna move,’ Glazier said. ‘It’s just that you can only do so much.’”