Condo Ownership Doesn’t Always Have It’s Privileges
Some reports on the questionable condo craze. “As the condo market cools, year-over-year sales of existing condos and co-ops were down 2% in March, some developers are trying a new tactic to entice buyers. Taking a cue from the boom in hotel condos, where developers combine residential units with hotel rooms, they are signing on big-name restaurants and chefs, opening trendy bars and building clubs on the property.”
“Putting nightclubs and restaurants in condos could have some drawbacks. Diners and clubgoers won’t be able to access the residential floors, but crowds and rowdy drinkers could get in the way of a good night’s sleep.”
“Ownership doesn’t always have its privileges. Vegas 888 plans to offer residents full access to its clubs, but some properties are reserving the right to enforce a tight velvet rope. Condo owners may pay $4 million, but letting them all into the club could hurt the rep. ‘We have disclaimers saying there’s no guarantee that you’re going to be able to get in,’ co-owner Kevin Venger says.”
“While all eyes have been focused on the downtown Chicago condominium market, condo construction has been booming in the suburbs as well. For the year ended March 31, there were 19,000 permits for multifamily homes issued in the 14-county area, compared with 11,500 permits in the year ended March 31, 2005.”
“The Metrostudy survey indicates there are 55,000 condominium units in planning and zoning stages in the 14-county region. The proposed units represent a four-year supply. Analysts have expressed fears that builders are putting up too many homes, and that orders are not keeping up.”
“About 5,400 people now live in downtown Austin, about one-third of them in seven new condominium and apartment projects built in the past five years. There are at least 16 more residential projects in the pipeline, which are expected to add about 7,400 more residents to downtown.”
“There also are a growing number of transplants from the East and West coasts, especially California. Buyers from California account for about 15 percent of residential sales in and around downtown, said Kevin Burns.”
“In 2002, Glynn and Renata Turquand sold their house in Clarksville with a yard and garden and moved with their 6-month-old daughter to a 10th floor unit in the Nokonah, which was one of downtown Austin’s first condominium towers. Yet as much as the couple likes downtown living, the lifestyle may be temporary, he said. When their daughter reaches kindergarten age, his wife will push for a traditional house. ‘Five years from now, she’ll get what she wants,’ he said.”
“Despite all the downtown projects in the pipeline, Todd Camp said he isn’t worried about a glut causing his condominium to lose value. ‘So many people are coming to Austin that I’m not concerned at all about depreciation,’ said Camp.”
“Not everyone, though, is happy about the changes taking place downtown. ‘It was hidden and tucked away when I moved here, quaint and peaceful,’ said Susan Speyer. But now, with a 22-story condominium tower and a hotel slated to rise next door, she says it’s time to sell. ‘That’s not why I moved here,’ she said. ‘It’s not quaint seclusion anymore.’”
From Tucson, Arizona. “Still deciding whether to buy (a condo conversion) is 12-year resident Herb Michaelson. He said he’s satisfied with his ground-floor unit, ‘but when I think of condo, I think of something with amenities, like a doorman. You get the advantage of a good location, but it’s still more an apartment than a condo.’”
“Location may be crucial to the survival of a conversion product, said housing industry analyst John Strobeck. With an abundance of homes on the market, he said only the Catalina Foothills is sustaining buyer interest. ‘The others are falling flat on their face, right now,’ he said. ‘Selling conversions in this market is going to be tough.’”
“(Commercial broker) Art Wadlund said the purchase and conversion of apartments is, more or less, over in Tucson. ‘This was a one-year phenomenon,’ Wadlund said. ‘Everything that was going to be purchased for conversion has already been bought.’”
“With 10,000 to 11,000 new homes sold in Tucson in a year, Wadlund said it will take two or three years to sell all of the condo units that are now available. ‘This is a cyclical business, so whether it’s two year, five years or 20 years, the time for this kind of thing will come around again, eventually.’”
‘This is a cyclical business, so whether it’s two year, five years or 20 years, the time for this kind of thing will come around again, eventually.’
As many have said, this is because condos spring up as a way for developers to quickly cash in on a boom, which also happen cyclically. As Jack McCabe said, condos are the last to take off and the first to crash.
‘it’s worth the price, she said, to be able to enjoy downtown’s restaurants, outdoor festivals and clubs, where she and her friends meet on Wednesdays for the Spazmatics..Camp lives in the Nokonah, where his neighbors include former Texas Gov. Ann Richards’
Confirms my suspicions that these places in Austin are for bar-flys. And does that 5,400 number include the homeless?
I have a question for you guys. I’m REALLY at odds about what to do with my $$$ right now. I’m 100% positive the best real estate bubble is bursting in my city (San Diego) so I’m saving as much money as I can right now to be in the best possible to snatch up property in the coming years.
My dilemma is this. I currently have a total of about $70k saved (outside my IRA’s) which consists of $30k in a money market fund (making 4.5%) and the rest is in the stock market. The stock market is starting to really scare me. I’m debating about whether I should take ALL my money out of the market and put it in my money market fund. I hate to have all my money making only 4.5% (I’ll likely be losing money after taxes and inflation) but I’m very confused about where the stock market is heading. It seems at this point the market has more to lose than gain, and even though I missed my opportunity to sell at the very top, it’s not too late to lock in some profits and get out relatively uninjured.
Here’s what I’m battling with in my mind: On one hand it would make sense that money should be flowing back INTO the stock market as people pull out of real estate. This should help the market stay up. But on the other hand, if and when the housing bubble collapses I would also imagine it will take stocks down with it. So which force is stronger? The inflow of new money into the stock market or the blow to corporate earnings due to a collapse in the housing market? I’d HATE to save all this money in preparation for a housing collapse only to lose it in a housing-related stock market crash! If that happened I’d be no better off than I am today.
So what should I do!? Sell all my stocks and go all cash for the next few years?? Or stay with my current allocation?
Sorry for some of the rough spots in my previous post, I guess I should have proof-read it BEFORE I posted it rather than after! Thanks for your advice guys!
So which force is stronger? Truthful answer: nobody knows.
“I’d HATE to … lose this money.” Okay, see, you answered your own question. All you need to know is the answer to one other question: If you make the wrong call, what %age allocation will allow you to be able to sleep at night? That’s the allocation you should make.
Jeff you have to do what makes you comfortable. If your sole objective is to be able to scoop up a house when the time is right, you’re better off staying in risk-free investments until that time.
The market is a little dicey (sell in May and go away) and the curve is moving back toward official inversion (10 year vs. Fed Funds). One thing I learned in the late 90’s/early 2000 is not to stand in front of that regardless of valuation.
Fine, you won’t make any money in the short-term, but you’ll feel great when you buy something at 40% off.
That’s exactly how I’m addressing the current environment — staying safe and liquid, looking to save beaucoup on the cost of a house and to heck with the renatively minor loss due to inflation that might happen along the way. My own horizon for this is 2-3 years. Many (younger) people will want a longer horizon to multiply their advantage.
Hedge, I was hoping you’d show up. What do you see the euro and US bonds doing in the next 2 months? I think we’re in for a midterm correction, and euro will drop and bonds will rally. What do you think?
There is no more money left to go back into stocks. There was credit leftover when the dot-com bubble burst. When the housing bubble bursts the “wealth” will disappear since it never existed in the first place (did everyone on the street make $100K when someone overbid on one house? I think not).
You can also buy PUT options on an index such as DIA. I’ve been doing that since the market topped. I think there is a lot of fear built that is about to be unleashed. A small amount of those options gives you GAINS as the market drops.
I’m in San Diego too, and I also want to make money NOW. But just keep your powder dry and the time will come they will be begging people like us to buy their houses.
On 5/10, I shorted WCI (a Florida home builder) and, on paper at least, am up 13% in 10 days. You’ve gotta love bubbles.
Shorted PULTE (PHM)…everything else in money market. When in doubt, do NOTHING. With oil at all time hi of $70 a barrel, we are in uncharted territory, and all the books and advisors from $50 a barrel are history.
Hard to say… I personally feel that the inflation has to stick… otherwise, the Fed is in a REAL BIND. Given this, the stock market and in particular tech (MSFT, INTC, DELL, AMAT) and gasp.. WMT (Wal-mart) to me are good places to park your money. Another place would be in a “short 30 yr bond fund”, ticker RYJUX and “Weaking dollar fund” RYWBX. Both of these funds are up 15% this year. Obviously do your own due diligence, but thru my brokerage there is zero fee for trading most mutual funds. Gold and oil have done great… I have no position in these, and feel that a correction should be coming soon. For oil, there is a Canadian company I like and have been in and out of for a couple of years (Pengrowth Energy Trust) PGH. They pay a 12% dividend, payable each month which is really cool. They are a pure oil and natural gas play. They have rights to pump the oil and gas out of lands they leased. But be forewarned, it is fairly volatile. If oil were to drop to $40 per barrel, it would get hit. You are buying the resources they pump out of the ground. And they return it to you monthly. Anyway.. thats my 2 cents.
I would go with safe insured CD’s . Your goal is to not lose money and save for real estate to take advantage when it tanks .
Yea…I’ve heard time and time again that any money I’ll need within 5 years should NOT be in the stock market. I have no idea when the bottom of the real estate bust will be…could be within 5 years…could take longer…but I guess it’s better to be safe than sorry? Better to be a day early than a day late I guess. I’m certainly not putting any new money into the stock market, besides my 401k.
3 words: dollar cost average.
Gekko — I think he will need a translation of that.
A nice 6 month T-Bill ladder flowing in and out of your 4.5% account. Go to http://www.treasurydirect.gov. You can buy every week if you want and link to your account and as soon as the 6 months is up it is back in your account.
Dollar cost average is no fun when the market drops. Would you dollar cost average into real estate over the next five years? Why or why not? Dollar cost averaging is just another strategy that looks brilliant in a rising market but is ends up as another way for the smart money to take yours during a long-term bear market.
Nothing looks good right now. For my money, the best thing is gold and I agree I don’t even think it’s that great. Euro? Yeah, right, France is the poster child for their economic problems. China? Talk about bubbles. Japan? Maybe. I really don’t have a strong opinion. Latin America? Due for their periodic Revolucion. Mideast? Already runup and inaccessible. Africa? Inaccessible and suicidal.
My mattress is looking better and better all the time.
INTC is a trainwreck, i wouldn’t be parking ANY money in chips now. Many areas will be hit by the MEW reversal, the economy is slowing down, this past week’s market action is a sign of this.
IMO -
1. Don’t sell your stock position now. Buy low SELL HIGH. This is where your GROWTH will come from.
2. make sure your stock position is in a diversified, low-cost mutual fund - ie Vanguard Index 500 or Total Stock Market.
3. Keep building up your Money Market Funds to prepare for downpayment and other house-purchase-related costs.
4. Dollar Cost Average $50-$100 into your stock position every month (but direct the bulk of savings into Money Market).
The Jews Say:
1/3 in Cash (Money Market), 1/3 in Land (Real Estate), 1/3 in Business (Stocks)
I think it’s solid advice.
The stock market is very fully valued. Earnings are very strong but are likely to return to trend, and P/E is quite high. If you wish to invest in stocks, some form of market timing is essential. I suggest either buy a book and follow its system (Michael O’Higgins’ “Beating The Dow With Bonds” or Ben Stein’s “Yes, You Can Time The Market!” come to mind) or put your money in the Hussman Strategic Growth Fund (HSGFX) which has a hedging system. Even if you don’t use the fund, its website Hussman Funds has a wealth of useful articles.
you can’t time the market.
Yes. Yes you can.
Please purchase Bull’s Eye Investing by John Mauldin.
I can’t tell you what the market will do on Monday. I can tell you what it will do over the next ten years (go down).
“You can’t time the market.” is a myth used to force people in no different than “You’ll be priced out forever.”
No, you can’t time the market. But you avoid buying overpriced securities who’s underlying value is obviously questionable.
Virtually everyone here believes the economy will soon go into recession. A growing number of us believe a depression is inevitable. In either scenario, stock markets tend to the downside.
That said, individual stocks can still go up, and there’s lots of money to be made going short, too. Gotta know what you’re doing… (like scdave or txchic57). If you don’t, play it safe.
Remember, the first rule of investing is “don’t lose money”.
If virtually everyone believes the economy is going into recession than I want to be BUYING. Precious few actually believe it.
Maybe you meant here.
Not sure if this is just a local phenomenon, but I am seeing new subdivisions going up (Northern Chicago suburbs) right next to the Interstate! One is about a block or two away from the I-94 Oasis (fancy easy on, easy off, gas station / McDonalds / high end truck stop). These are $500k+ McMansions… Now I ask who in their right mind is buying these? The homes look very nice and all, but how do you explain to your relatives how you bought a $500-800k home that overlooks the busy Interstate? Open windows would bring in the blare of diesel trucks. Soon, I’m sure they will put up “No Engine Braking” signs. Kind of a strange way to live.
Regarding the Chicago high-rise condos. This boom/bust has happened before. The fool buys at the top of the boom, which was last year. These condos are for single people. In other places in Chicago, they buy a house and turn it into 3 unit cinder block building with brick facea and you guessed it “granite countertops and stainless steel appliances”.. lol. $500k each unit. The fools who buy share the city block with old run down homes where if they are lucky they are mostly occupied by illegal immigrants. Forgot to mention, they all have wrought iron fences, I guess to keep “them” off their 10 foot to the door “yard”. When the economy turns, the illegals wage goes down and crime goes higher.
If I was going to buy, I’d rather buy the beaten down looking home right next door to these 3 story cinder block and brick “3 flats”. I’d have to erect a 12 foot high wrought iron fence with spikes on top… But I’d have twice the space for 1/2 the cost..
Also, a lot of these condos they are building in the Chicago suburbs are empty. Not speculator owned; never sold. In the town my parents live in they built condos that backed right up to the Union Pacific RR tracks. I don’t know if any of them sold. The developer was supposed to develop “Phase II” right next door, but it is balking now. So now they just have a big lot of bare dirt in the middle of town. Other condos look to be 1/2 occupied at best, and the developers haven’t been able to rent out the commercial space either.
In my town, there was a very controversial enormous condo development built in the center of town. Judging by the r.e. listings, it appears to be at least 1/3 speculator owned (and they are not selling).
These stores are too funny. I’m always amazed that people are so dumb/naive/financially incompetent.
Vegas 888. Who would pay millions for a condo that is going to have dozens of drunken tourists wandering around its block everynight and not even be guaranteed entrance to the restaurant and night club in the place? I thought we were running out of fools in this boom.
What businesses are in Austin besides Dell, its vendors, and the liquor stores supplying the college students? Condo supply increasing by 120% but the owners are not worried about depreciation. This kind of thinking (more likely lack of it) is why that doofus will be upside down if those new condos are completed.
My favorite is the guy in Tuscon who wants a doorman with a condo. Does he have any idea how much his mothly HOA would cost for that? And that cost, unlike the cost of his dream condo, will only go up.
Austin is the capital, so there are many state jobs. Several universities. But the city fell harder than the rest in the last bust, if you look at commercial vacancies. And Austin’s downtown is much more built up now than 1987.
Austin is one of the prime location for the “equity locusts” from the SDCIA board. The scourge continues to spread out from the CA borders.
Dukes,
Saw how they “banned” you over there! LOL!!!
Mighty thin-skinned folks on the SDCIA board. I read the threads and couldn’t figure out what they were so “offended” about. Also, Foobeca (sp) was trying to help them out as well. Props to you guys for trying to save the greatest fools. That was nice of you, but their denial is surprisingly strong.
Vegas 888? gee, who likes lots of “8″s? My guess is, thats who will be buying.
I think it has to do with Rachel Ray. She was just named one of the most influential people in Time, wasn’t she? And she did some nice spots highlighting how wonderful Austin restaurants and bars are. I think there are people who watch the food channel or the travel channel and make RE decisions based on it.
I’m really concerned about a slew of new condo projects proposed and under construction for Ann Arbor MI. I think Austin is a good parallel in some ways. I’ve liked downtown AA because it was quaint and lively and quirky, smalltown and relatively cosmopolitan and well educated at once..but I fear it’s gonna get wrecked even more than it has been recently. And with the MI economy you have to be just kidding thinking people are going to be excited about spend-spend-spending right now. We’re way more dependent on the big 3 than people like to believe, and though we have bunches of little tech and biotech and the U, even some of the bigger non-auto-industry companies are cutting jobs…Pfizer for instance is being very close-mouthed about their ultimate re-structuring to cut costs. Plus I don’t think anybody would get excited about the bars and restaurants here unless they’re coming from maybe Idaho.
It’ll be interesting to see how these condos sell, and how they change the feel of downtown. One set of condos is going in, right on top of a cargotrain track with multiple intersections and endless bells and hooting all night (woke me up constantly when I lived near them years ago now…), in a building that had been a factory building all the big 3’s supply of some gauge or other…tanked and the parts probably built overseas now. But hey, condos will come of it!
Austin has a lot of strong companies, but the city’s economy is very tech (semiconductor) heavy. Thus it’s very vulnerable to semiconductor industry downturns. The main employers are: the state government; UT-Austin; Dell - headquarters; Freescale Semiconductor - headquarters (Freescale is Motorola Semi spin-off); AMD (several thousand employees); Whole Foods - headquarters; Applied Materials; Tokoyo Electron; Silicon Labs- headquarters; …all of these companies have created significant wealth for the city, particularly for young people.
I left Austin for Albuquerque for a job transfer. I’d move back to Austin in a heartbeat. The city is full of educated people; has relatively low crime; downtown is clean and safe; Austin’s affordable neighborhoods still have good public schools; it’s got a pro-business environment; lots of young people with a positive attitude, etc.
I didn’t like the heat, and the traffic is terrible for a mid sized city.
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The time when I am *most* desperate for a fenced yard is when they’re pre-schoolers. They love to run about in the fresh air. Being cooped up stinks.
Sorry, I attempted to quote the part where the couple moved to the condo with their 6-month-old.
You have to know the area to really see the error. They previously owned a 2700 sq ft house in Clarksville with a yard and a garden! This is only a mile or two from the condos. Now they are going to move again in a couple of years for the child. For the cost of the sales transactions alone they could have paid for downtown parking thousands of times.
Not to mention Clarksville (where I rent a $550-650K house at a very reasonable rate) is one of the inner Austin neighborhoods where home values have skyrocketted in the last 2 years, much more so than the Austin average which takes into account the never-ending supply of dirt-cheap suburbs a 45 minutes commute away.
So bottom line, they moved 2-6 blocks closer to downtown (which is only ~10 blocks away) and missed probably at least $100K in appreciation over the last 4 years.
P.S. - to the moron asking if Dell was the only employer of note in Austin, educate yourself and you’ll see that that is akin to asking if Microsoft is the only employer of note in Seattle.
I learned early on that you can find reliable parking almost anywhere, guaranteed, by posting “wanted” notes (or ads) and offering a decent but not outrageous rent. There are people who live in innner cities who have garages or parking spaces but do not use them. Cash talks.
I know…that part was puzzling! I think they figure then they’ll need the yard and bigger house for proper ‘play dates’ and such. For now, while the kid can still fit in a stroller and be dragged to bars, wife prefers the urban mom vibe. They might get serious secondthoughts when she starts toddling around and the bars and city streets seem less appealing as a place for a preschooler to let out her ya-yas.
Check out Terra Serena, from KB Homes in Milpitas, CA, Silly Valley.
They advertise Condos of 1250 Sq Feet in the “High 500 thousands”. What they forget to mention is that the development is literally 50 feet away from, and bang opposite to the Penetentiary (County Jail), complete with barbed wire and fences etc. I guess you pay more money for the view of jailbirds exercising in the yard. :-).
Feepness is right. As housing tanks people won’t be pulling out wealth and investing it elsewhere: they will be pulling out debt.
Jeff, if RE crashes as hard as many people think it will it will put a huge hit to employment and retail sales. This should be enough to tip the stock market into a crash also.
People have become accustomed to the idea that money will flow out of one bubble and into another. But my guess is that this is the end of the line for awhile. No more bubbles coming up until a fair amount of pain has been felt by all.
“…until a fair amount of pain has been felt by all.”
All except, perhaps, Ben’s legion.
True that the home buyers aren’t the ones with cash to move to the stock market. HOWEVER, the MBS buyers do have cash and can move it to the stock market. There is a lot of confusion about the “money going into RE.” It’s not going into RE as much as it’s going into mortgages (credit market). This is a credit bubble more than a housing bubble.
IMHO, there can indeed be a new bubble. There is money, **lots of it**, out there looking for a return. The past few years, it’s been the mortgage market bubble (housing is just a reflection of that)…next is ????
p.s.: not saying it’s going into the stock market, as I do believe a recession/depression is on the way. Could it go to Japan or other markets (So. Africa, India, China, Korea, Russia, etc.)?
I’m waiting for a global recession, then will likely invest in overseas markets after the dust settles. Just MHO.
But alot of the money in MBSs will simply goo “poof” when borrowers default, and the issuers become insolvent. It is my understanding that alot of the craziest mortgages aren’t bundeled by F&F but by private concerns. Whatever money in in their coffers will be spent on lawyers in the huge, upcomming fraud lawsuits.
Shopping for apparisers until you hit the number=The MBS has a fraudulent Loan To Value figure.
Issuing a No-Doc loan to a fast food worker who claims to be making 100k/yr=so obviously untrue that reselling the loan counts as fraud
Even though EVERYONE, buyer, seller,broker, appraiser, MBS purchaser colluded together, when the house of cards falls, lots of finger pointing and lawsuits will ensue.
Don’t forget there are lots of corporations sitting on lots of cash waiting to jump back in the stock market. Microsoft is sitting on $4 a share in CASH. Maybe Joe6pk won’t have any cashflow but there are many who still will.