The Million Dollar Question For Condos
A pair of reports on condos. “Home prices in much of the Washington region will likely drop 10 percent or more because prices have far outpaced affordability for first-time buyers and investors, according to a forecast this week by Mark Zandi, chief economist of Moody’s Economy.com.”
“Condominiums will be hardest hit, Zandi predicted Thursday at the National Association of Home Builders’ spring construction forecast. He said that the growing inventory of condo units that are for sale or being built here suggests that the slide would be worse for that sector.”
“Zandi predicts declines of 10 percent or more in the area made up of the District, Northern Virginia and suburban Maryland excluding the Bethesda area. Northern Virginia is susceptible to the risk of price declines because it has the highest concentration of condos and has seen the most building generally, Zandi said.’”
“He pinpointed six areas where prices have exploded as the most likely to see crashes. In addition to the Washington area, they were Atlantic City-Ocean City, N.J.; Las Vegas; Miami; Orlando; and Phoenix.”
“More than 40 percent of home buyers last year were in the market for the first time. Until recently, lenders had still been able to entice borrowers with loans that required no money down, interest-only payments or other terms that kept monthly payments low, but regulators and lenders themselves have gotten increasingly nervous about exposure to defaults, he said. ‘This game is up,’ Zandi said.”
From the Dallas News. “As construction cranes fill the Dallas sky, some are wondering whether there are enough buyers to fill the opulently appointed properties. Dallas has about 15 high-end projects on the market with a total of more than 1,700 units. Most of the units start at $400,000, more than three times the average value of a single-family home in Dallas. An additional 1,000 units are on the drawing board.”
“Are the ranks of the Dallas wealthy stout enough to fill them all? ‘That’s the million-dollar question,’ said Paul Nelson, (developer) in Dallas. ‘The answer is, we don’t know.’”
“Indeed, one effect of sluggish price appreciation in this area is that some longtime residents say they don’t have enough equity in their current homes to afford to move into the pricey new condos. For example, Dan Koop and his wife might consider moving to the city, but he doesn’t think he could recoup the $325,000 that he paid in 1985 to build a home in Plano. ‘We would have to take a $25,000 to $30,000 loss on it,’ he said.”
“Mortgage payments, taxes, insurance and fees on a $500,000 unit could add up to a monthly payment of almost $4,000, based on a 20 percent down payment, said Dallas real estate consultant Mike Puls. That doesn’t factor in monthly homeowner dues. A 2,000-square-foot unit could have monthly fees of more than $1,200.”
“In Dallas, the buyers come from three groups, each represented about equally: empty-nester baby boomers, well-heeled young people and out-of-town investors. Relatively speaking, Texas real estate is cheap, giving investors more of an upside compared with overheated real estate markets across the country. The interest from out-of-town investors over the last year has validated Dallas’ attempts to revitalize the center city, said (consultant) Michael Granfield.”
“Bernard Weinstein, at the University of North Texas, said he’s concerned that most of the buildings are aimed at the top end of the market, with little available at lower levels. ‘I think they’re missing a market for pre-baby boomers like me,’ he said. ‘I don’t want to take out a $300,000 mortgage. I don’t see a lot of construction of what I call ‘multifamily for grown-ups,’ Mr. Weinstein said.”
“‘I’ve seen the ebb and flow, and something is different now,’ Dallas chef Stephan Pyles said. ‘There’s such an excitement here. I’ve not felt it since the early ’80s. We’ve finally become the city that we hoped and thought it was going to be in the ’80s.’”
Dallas makes the same mistakes with its downtown, over and over. In the 80’s it was converting vacant industrial properties into ‘lofts.’ The reason they are doing condos is the downtown office building vacancies was over 20%. ‘I don’t know’ shouldn’t be the answer to roll these dice on and with thousands of units, it’s a multi-billion dollar question.
BTW, they are doing the same thing in Ft. Worth, just not as many.
They’re doing the condo thing everywhere. Lots going up in Anaheim, Santa Ana. They’re gonna just sit there soon. Who would want to live in a condo anyway? I want to be somewhere that I can turn my computer sound up, stereo up and have some fun. Walls are too thin in condos. And then there is the hoa dues. Geesh, some are over 1000 a month. Who can do that? I would like to know what all that includes. As far as I can see, not much. Crazy stuff goin on. Let’s suck out that last buck from builders is pretty much gone.
‘Mortgage payments, taxes, insurance and fees on a $500,000 unit could add up to a monthly payment of almost $4,000, based on a 20 percent down payment’. That doesn’t factor in monthly homeowner dues. A 2,000-square-foot unit could have monthly fees of more than $1,200.’
People in Dallas with that kind of money want a big house. There is no way they will find thousands of buyers in that range and up. Keep in mind, many of these units are conversions; 20 year old buildings, or so.
These conversions are glorified prison cells. A yard and some privacy would be nice. It is sad that people have to resort to this way of life. No wonder prozac is so rampant today.
They are doing “loft conversions” in downtown LA lately, and for the life of me, I don’t know who would buy those things. Especially now that the Ninth Circuit court has ruled that the city can’t clear the bums off the sidewalk when they set up camp in front of your building.
Downtown LA is a ghost town at night, except for the bums. You can drive the streets and see fires burning in trash cans, many buildings are completely covered in grafitti, and drug dealers operate openly in the few parks. There are trains running right across intersections with no crossing guards, people urinating against the buildings in broad daylight, horrible traffic, and very expensive parking (if you can find it).
Business-wise, there are no longer any Fortune 500 companies left, the garment industry is getting killed by imports, and suburban (and county) police agencies and hospitals are dumping more addicts and mentally ill people there daily.
Check this out…
Also, Telecommuting is up
and they really really want this dt condo thing to catch on. but i don’t see it happening. except for bunker hill, the whole scene down there is dirty. head south from grand and it gets very, very seedy.
it’s not new york or san fran. maybe if there was a small ocean or lake nearby…
Hot home market eases into slower gear
http://www.dailynews.com/business/ci_3767433
sm_landlord-
I had heard the opposite about the skid-row problem. I heard that the ACLU ( the biggest defender of skidrow) and the city had worked something out in regards to that “problem”.
Like cereal says once you get past grand it’s another world I actually reccomend being armed. But before that it becomes a mixture a lot of folks walking around not all of them bums and the nightlife is actually trying to spark up. But if what you say about the ninth-circuit is true then a whole lot of people are holding a pretty smelly bagright now
Ben - Fort Worth is completely different. The Bass family owns the majority of the downtown area. Once everything crashes, they will buy up the rest for pennies on the dollar.
Why would anyone want to buy in these downtown armpits? Seems to me that it would make a lot more sense to rent, then see if you like the “lifestyle”.
Downtown Dallas is weird. It’s a sea of empty parking lots, a 50-story building that’s half vacant, another sea of empty parking lots, a 40-story building that’s half vacant… so what’s the attraction? For less than half that you could buy a decent house in the burbs and put the rest of the money to work.
In Saturday’s Washington Post a condo developer in Reston had an ad that read “MUST SELL 30 UNITS IN 30 DAYS!” They’re sounding more and more like car dealers every day.
I saw that. I think they also ran that ad last week.
Of course, Stephan Pyles has a $1M Turtle Creek place for sale or did the last time I looked . . . plus a new restaurant downtown near the new buildings to promote.
This is a total crock of shit, pardon my French. These expensive condo buildings were built to sell to suckers from out of state. There is no way that the locals buy these places in the numbers and at the prices they envision. No way, no how. Dallas is not a sophisticated, urban place and the inner city (especially downtown) amenities do not support these buildings. For 500K in Dallas, you can buy a very nice house a few miles out of downtown. Hell, you could buy three of them on my street!
I saw the beginning of scary speculative building here beginning in 1999 in the McKinney/Turtle Creek area.
And take note of the comments re Plano. Plano, north of that and west of that is a lot of where the really stupid out of state money is “investing.” I wish they’d give the money to charity where at least some deserving organization would benefit from their desire to toss it away.
I like to move to the Dallas area(Plano, Beldford,Highland Village…), houses down there are cheaper than here (Washington state), for $200k, you can get a nice one with a pool, up here, it’s about $500K or more, but property tax is way higher down there, for a $500k house here, pro. tax is about $3.5k to $6.5K depends on the county, houses in Texas looks nicer, brick houses, up here, it’s wood siding and you have to repaint it every few years, the weather up here is very nice during the summer months (about 5 mons), then when winter comes, it’s dark, cold, gray, wet, you will living in the dark for 7 mons, it makes you feel depress some times. So any comment, or advise? Thank you in advance.
Average property taxes in Texas are between 3-3.5%, so total taxes on comparable houses are about the same. You say you get depressed during those dark Washington State winters. What would you say about a place that gets regular ice storms every January, but from May-September it’s a sweltering hell hole that’s so hot you can’t even go outside? Texas is not a place to move to due to the weather, unless you are totally fed up with winter.
Do you guys notice how some of the listings now don’t have the actual address so you can reference it on zillow or other sites?
I noticed, because I wanted to zillow a property last night but no address. The builder did lower starting units from the low $300K in February to high $200K as of last night.
It took me awhile to find an address. I went to the actual realtor’s site. After finding it, I realized that someone wants a 450,000 profit from a house they bought 2 years ago in Temecula. That is soooo crazy!!!!
I waiting for Zillow.com to start posting the sales from the last two months . Seems like in some of the areas I look up the last update was March 1, 2006 on Zillow.
Zillow will never be that up-to-date, as many records aren’t even put into public databases for 60+ days after they are completed. You need to keep track of those yourself if you want sales completed in the past 2 months…maybe in your local paper?
Not listing addresses has been going on in Colorado’s resort areas for years.
zillow’s estimates are way too far off the mark to give them any heed. You would be better off just checking the local comps.
I like to look at the sold/closing information as well as property history information on Zillow.com . I ignore Zillows estimate of value but alot of the other information is good to have .
Zillow is silly. Trying to derive the value of a house without having seen it, and without the 100 pieces of data they’re missing just doesn’t work. In their own literature they say “zillow’s estimates are only starting points for valuations” (you have to adjust the estimate). Well… then what’s the point? If I’m adjusting the estimate to get it closer to *my* idea of the value, then I’m helping them, they’re not helping me.
Agreed. i don’t use it for value ,I use it for comp info.and property history information .Zillow also gives a general idea of sq. footage info. for the area . But I agree that it’s not accurate as far as what the actual sales price should be . For instance Zillow has my house 20K over what it should list for in this market . Zillow also lags 2 to 3 months behind on closed data . But Zillow does provide some information that I would have to go to the county to get ,so its easier this way .
I agree - I looked up a home in Lovettsville, VA (tiny house in a podunk town), and zillow helpfully informed me that the value had gone up $6,500 in a week!
‘Dan Koop and his wife might consider moving to the city, but he doesn’t think he could recoup the $325,000 that he paid in 1985 to build a home in Plano. ‘We would have to take a $25,000 to $30,000 loss on it,’ he said.’
You read that right. 1985 was right around the peak of the Texas RE boom and some folks like Mr Koop have been underwater for 21 years and counting.
And yet Plano and the exurubs are where the out of state “investors” are buying. Go figure.
Thought that was a misprint. That is an eye opener!
And that’s not even putting into the equation the lost opportunity costs.
Where would he be if he’d just put the money he spent in ‘85 into 3 or 6 month treasuries this whole time?
Inventory on the rise in DC.
http://dcbubble.blogspot.com/2006/04/old-threads-mlk-library-eyesore-or.html
The condo game is rediculous everywhere.
Mpls is no different (sigh). There are so many condo projects going around right now that I’ve lost count, including 7 condo towers that hover in the 35+ story range, and a few city experiments where they’re leveling whole blocks of SFHs and putting up condos (like in the Midtown Lofts where they levelled 3 square blocks of homes, not just 3 blocks).
It’s all high end stuff. In the city, it starts in the $400s and up (for small stuff) and the really nice stuff is going for over a million. (the REALLY nice stuff like in the Carlyle can run up to/over 5 Million bucks- in MINNEAPOLIS).
Who is buying those? No idea.
Even the modest 2BR 2Ba condos in the warehouse district are $450k plus with HOA fees over a thousand dollars/month.
If I’m paying $1200/mo in HOA fees, I’d better get some SERVICE! (and we’ll have to change some MN laws, because the service I want for $1k/month is thus far only legal in Nevada and Thailand!)
There are cheap condos here and there, but it’s the rarity.
Clouseau
but what if these luxury towers get killed on price in a few years? there will be some lucky pups with a fistful of dollars and a nice place to live.
but what if these luxury towers get killed on price in a few years? there will be some lucky pups with a fistful of dollars and a nice place to live.
The problem is that the HOA fees will still be a strong deterrent to anyone sane.
I’ve also noticed something: EVERY condo complex is a “luxury condo”. Have any of you seen any condos that aren’t “luxury”?????? We just went to Target, and passed maybe 20 condo complexes in the works… all of them had “luxury” on the pre-sale signs on the street…
And for those of you like me who own SFHs… don’t think this won’t affect us… Condos are replacement items for SFHs… and even though it might not be equivalent, if the condo price falls far enough it becomes more attractive, which will pull SFH values down too.
Especially since our plain-old vanilla SFHs have to compete with LUXURY condos!
Clouseau.
‘EVERY condo complex is a “luxury condo”. Have any of you seen any condos that aren’t “luxury”?’
Right, that’s because they aren’t being built to satify a real housing need, but to cash in quick on a boom. It happens in every cycle.
just as a random aside, my wife and I took our two kids for a walk around our neighborhood this afternoon. This is in Jupiter, FL. There were five open house signs at the entrance and I counted a total of about 20-25 homes for sale total (judging from lockboxes, signs in the window etc. This is in a neighborhood with about 250 or so total houses — some of which aren’t finished yet (it’s still being built out). So lots of inventory to choose from here … and very LITTLE actually moving. The house across the street from us, for instance, has been on the market since December.
More interesting was the conversation we had with a dad and his son who were at the playground. He said he was a builder who just finished a $110 million condo project. He called the market crazy for a few years, but definitely cooling. He volunteered that some of the buyers would be South American types buying 10, 15 units at a time (can you say “laundering the drug money”) … and that now, pre-construction buyers were just walking away since the market is cooling, leaving $50,000 and $70,000 deposits on the table left and right. Oops. Guess the “hot” market for all these high-rises ain’t so hot anymore.
I’m in Boynton Beach just south of you mike, and there is virtually “NO” market here either. I have a student who is not able to move into a “new” housing development because his former house has not sold yet. Dad had to call and cancel the sale….Not sure how much he lost in downpayment money. There are houses here that have been on the market for several months now. Open house signs everywhere and condos reverting back to apartments…..
“South American types buying 10, 15 units at a time”
Uh-oh. Think flop houses. This is why I will never buy attached housing again that I live in, ever.
Venezuelan petrodollars too.
BTW posted this but it didn’t make it on. Stephan Pyles is just a tad disingenuous here. He’s got a new restaurant to promote downtown right near some of the new condo buildings and last time I looked, a million dollar place for sale in Turtle Creek.
I thought the same thing. He’s got a vested interest in downtown with his new restaurant. Unfortunately, for him and the rest of downtown, these places will sit idle with no actual residents (unless the folks that buy them rent them out real cheap).
The grocery store downtown (brand new) is hemorrhaging cash and wants the city to leap-frog a couple of other projects to get them some incentive money.
Folks talk about revitalizing downtown, but downtown has never been a place to go after 5 p.m. for as long as I’ve lived here and these junky conversions aren’t the answer, especially at the prices they want for them.
We have thousands of these places, new and conversions coming online in the next year or so and I do not see any market for them. This market will collapse very soon in Big D.
How many condos are being built downtown? I know there are some, but I thought most were in uptown. I lived in an uptown condo for 7 years and I thought it was great. I cannot see any reason to live downtown.
Come to Fort Worth! I just bailed out of the DC market and moved to cowtown. Nightlife is great in the city center and booming. And you can get a great house for a good price (or if you like a condo in the downtown are).
As mentioned upthread the Bass family keeps Ft Worth going and has revitalized downtown. If you go - note the brick sidewalks - the rumor is the Bass familiy owns all the land towndown that is surroned by the brick sidewalks ($$$).
“Home prices in much of the Washington region will likely drop 10 percent or more because prices have far outpaced affordability for first-time buyers and investors, according to a forecast this week by Mark Zandi, chief economist of Moody’s Economy.com.”
Hah! Now mainstream economists (like Zandi) are suddenly jumping on the forecasted-price-decline bandwagon. I forecast that the number of economic forecasters who predict price declines will increase over the remainder of 2006.
I wouild like to see the # of economist in the real estate profession drop by 10%.
10% is hardly a “crash” - more of a blip. I’m fully prepared for 25%; so 10% makes me happy.
10% minimum.
Kind of like the number of fund managers and financial analysts that are “discovering” gold and silver right now. Gee, really guys?
Went to several open houses with my wife - kids went to a skating party- we were treated like a king and queen. We were the only vistiors at everyone. They followed us around like puppies.
I recall in 2004 visiting open houses and asking for a brochure and realtor’s response “What do you do for a living? How much do you make a year?” I was stunned. This reminds me why I cant wait for this bubble to burst.
“http://news.goldseek.com/NedSchmidt/1146410665.php”
Some interesting comments on gold and the “unwinding” of the housing/mortgage bubble.
“More than 40 percent of home buyers last year were in the market for the first time. Until recently, lenders had still been able to entice borrowers with loans that required no money down, interest-only payments or other terms that kept monthly payments low, but regulators and lenders themselves have gotten increasingly nervous about exposure to defaults, he said. ‘This game is up,’ Zandi said.”
********************************************************************
Is the game up? I still see builders offering these toxic terms.
I still hear ads for these crazy loans, but come to think of it I dont recall hearing many ads lately saying that bad credit is not a problem like they used to. Maybe they are getting more careful with credit.
Also, I listen to the radio station 97.1 in LA alot and this one mortgage company used to advertise like crazy on that station. I dont remember the name of the company but the president and spokesman’s name is Fernando Perez. He used to advertise every break. I have not heard him for a couple a months now, maybe there is trouble in mortgage paradise.
They are not building for DFW wealthy, they are building for equity refugees from Cali. “I don’t want to take out a $300,000 mortgage..” versus “I would love to have a mortgage of just $300,000.” Totally different mindset.
My point exactly.
Well, the condos in Tysons-McLean (Virginia suburb of DC) that I am tracking are now off 27% since the summer 2005 peak. One is still listing at the peak (375k) for a 2 BR because it is a sucker investor who bought for $362 in May 2005 and is trying to bail out……
Units “priced to sell” have dropped to $275k. People who bought in the late 1990s are looking at 3-3.5X purchase price at these levels, so still a healthy ROI over 7-8 years.
This is a micro-market that gets buried in the median numbers.
p.s. A house down the street from me in McLean was being flipped last fall (purchased in Feb 2005). I laughed when I passed the house with a lonely agent pacing the yard when noone showed up for the open houses. But then in Nov or early Dec the “under contract” sign came up and it remained for months. I checked the other day and the county records show no change of ownership….. is this a new marketing tactic: to pretend to sell it?
“is this a new marketing tactic: to pretend to sell it? ”
It could be, but it’s a dangerous one. When we bought our house we scoured the internet like crazy. We went to tons of open houses. In the rare case when we were REALLY interested, then we’d get our RE agent to show us the house. If the ad said “sale pending” or “under contract” we just would just go to the next listing… why fret over that when there are so many houses? Seemed like a lost cause to us… even in the heyday when we bought there were a lot of houses on the market, it’s just that there were a lot of buyers too… so when you found THE house you had to jump. why jump on a house that’s already been jumped on?
clouseau
I am following Reston, Va. and have seen a drop of 10 to 20% in pricing for condos. Single family seem to be holding last year’s prices.
BTW - I heard that builders are holding back inventory of cancelled sales so as not to further flood the market. Got this from a reliable source.
OT, sorry, but breaking, Ben:
new gallup poll says housing market confidence dips:
http://poll.gallup.com/content/?ci=22609
Once again showing the dangers of pussyfooting around with old data (see nytimes link below). Props especially to Athena, and to those suffering bubble lepers- looks likes lots of folks are catching on.
http://www.nytimes.com/2006/04/30/business/yourmoney/30count.html?ex=1304049600&en=f1ad3f256abc0248&ei=5090&partner=rssuserland&emc=rss
Tried to post, and it didnt” take: look at new gallup poll:
http://poll.gallup.com/content/?ci=22609
says housing market confidence dips - a much different take than old data NY times published sunday. Should encourage bubble lepers out there
I just downloaded the building permit data for the first three months of 2006, vs. 2005.
Total units permitted in buildings with five or more units is up 22.7% vs. Jan-March 2005 for all metro areas combined.
Among big markets, big gains in:
Miami-Ft. Laud-West Palm 35.3%
Los Angeles-Orange 50.0%
Chicago 108.4%
Las Vegas! 748.9%
Atlanta 68.8%
Washington 31.2%
SF-Oak 249.5%
Phoenix! 102.1%
Austin 182.1%
Along with some huge percentage gains in places where the condo tide is just reaching the beach (Memphis from 46 to 678).
Where are builders pulling fewer multi-family permits?
San Diego -50.7%
Orlando -40.8%
“Are the ranks of the Dallas wealthy stout enough to fill them all? ‘That’s the million-dollar question,’ said Paul Nelson, (developer) in Dallas. ‘The answer is, we don’t know.’”
An even better million-dollar question: do the wealthy folks of Dallas want to live in condos?
(An even better million-dollar question: do the wealthy folks of Dallas want to live in condos?)
Sure, as long as there is a place to park the limo (or helicopter) that takes them out to their ranches.
You read that right. 1985 was right around the peak of the Texas RE boom and some folks like Mr Koop have been underwater for 21 years and counting.
And that’s just to get back to the nominal price at which he bought it, without accounting for inflation. Assuming a reasonable 3% average for inflation over those 21 years, even at his “break even” point he will need to increase the value by another 86% to keep up with inflation.
But of course if you rent, you’re just throwing away money.