‘Similarities Are Striking’ For Overbuilt Condo Markets
The Wall Street Journal has this report on the condo bubble. “Perks being offered by sellers? Until recently, buyers in many markets were competing for the chance to snap up new condos downtown. There are spreading signs that the market may be cooling, just as in the overall market. The worry for investors is that this real-estate slowdown will mirror that of the early 1990s, when condo values in some markets dropped more sharply than those of single-family homes, in part because many had been bought by speculators, the same kind of speculative buying that has fueled this era’s boom.”
“In San Diego, where condo prices more than doubled from 2001 to 2005, inventory (units being sold by owners, not developers) rose more than 80% in 2005, according to local agent Lew Breeze. In the same period, inventory in Minneapolis tripled. In Las Vegas, the epicenter of the condo boom, at least four condo projects have been scrapped, including Icon Las Vegas, which had already sold contracts for units.”
“At a high-rise in Atlanta that was completed in mid-2004, the developer recently began offering to pay HOA dues ($270 to $450 a month) for new buyers for a year. Why? Half of the building’s 206 units are unsold. Sellers of existing condos are also coming up with inducements. Lenaya Miller, a real-estate agent who sold her six-year-old condo near Midtown in October for $164,000, says she paid the buyer’s first year of HOA fees ($5,000) and the closing costs ($4,900). ‘To be competitive, I gave them everything but the shirt off my back,’ she says.”
“Downtown-Boston condos peaked in 2004. But it wasn’t until the last quarter of last year that developers and sellers of existing condos really started to feel the impact, as condo resales fell 30% from a year earlier. Porter 156, a 217-unit condo conversion in East Boston, has about 25 unsold new loft-style units and 25 just-purchased units on the market. During the December holidays, the developers left cards in owners’ apartments offering a $1,000 gift certificate to Ikea for owners who found buyers for any remaining units.”
“According to the Minneapolis Area Association of Realtors there were four sales of existing condos in January, compared with 27 a year earlier. One example is the 39-story Carlyle, which is scheduled for completion in December. Developers have presold 240 of the building’s 255 units, taking down-payments of 5% to 10% on units costing $250,000 to $1.5 million. In hopes of keeping those buyers from backing out of their contracts, the developers have treated them to bicycle tours of downtown, a group trip to a Gophers football game and a private holiday party.”
“Of the condo markets we surveyed, San Diego showed the strongest signs of a slowdown. San Diego had an 82% rise in inventory of existing condos last year as speculators stopped buying. Many also backed out of contracts and forfeited their downpayments: In San Diego County, the number of canceled purchase agreements for new condos and townhouses jumped by 75%, to 264, from the second quarter to the fourth quarter of 2005.”
“For Rachelle Amini, such developments strengthened her bargaining position when she found a two-bedroom condo in a downtown high-rise last fall. The 28-year-old psychotherapist says she talked the investor-seller down to $1.15 million, $50,000 less than he had paid for it in 2004. He also threw in two plasma TVs and a new white sofa.”
“In Sarasota, Fla., an overbuilt downtown condo market is leading to incentives such as deals on beach-club memberships. More than a dozen condo projects have been built since then in this city of 55,000, and there are as many units under construction now as have been completed over the past six years. Plus, about 273 condos are on the market.”
“That’s almost triple the amount of condos on the market here a year ago. And more continue to be announced, including a 16-story tower, and the Grande Sarasotan, with 144 condominium units priced from $1 million to $3 million. ‘Where are the people going to come from?’” says broker Barbara Ackerman, who predicts the median condo price in downtown will drop a ‘minimum of 10%’ this year.”
“January is typically a slow month here, but this year there were six condos that resold, down from 14 in January 2005. It’s no longer uncommon for sellers to offer hard-to-get golf and beach-club memberships, which can cost as much as $75,000 apiece. Bert and Jane Kummel, retirees who put their three-bedroom condo on the market for $2.4 million at Thanksgiving, have thrown in $1,000 worth of opera tickets as a lure. But to no avail, says Mrs. Kummel: ‘It’s a great marketing idea, but people just aren’t buying like they were.’”
“have thrown in $1,000 worth of opera tickets as a lure. But to no avail, says Mrs. Kummel: ‘It’s a great marketing idea, but people just aren’t buying like they were.’”
No need for opera tickets, the fat lady is singing and the tragedy will unfold without having to attend at the theatre.
I’m shocked that $1,000 worth of opera tickets hasn’t swayed someone into making one of the worst investments in their life.
I mean, my goodness that’s like a 0.04% refund right off the top!
She probably should’ve added a sixpack of Bud Light. That might’ve done the trick.
“For Rachelle Amini, such developments strengthened her bargaining position when she found a two-bedroom condo in a downtown high-rise last fall. The 28-year-old psychotherapist says she talked the investor-seller down to $1.15 million, $50,000 less than he had paid for it in 2004. He also threw in two plasma TVs and a new white sofa.”
wonder what is next?
“For Joe, such developments strengthened his bargaining position when he found a two-bedroom condo in a downtown high-rise last summer. He talked the owner, a psychotherapist, down to $0.75 million, $400,000 less than she had paid for it in 2006. She also threw in three plasma TVs and a luxurious new kitchen.”
yes, people will buy all the way to the bottom …
sorry, maybe the second part should read ‘…than she paid for it in 2005′
My question is how does a 28 year-old psychotherapist afford a million-dollar+ condo?????
Sorry Rachelle, you may have thought 50K off 1.2M was a great condo deal, but you let that flipper off the hook easy. Now you are left to hold the bag when the 50% plunge hits. I hope you enjoy your sofa and plasma tv the flipper so generously threw in. You may need some pschotherapy yourself when you realize the bath you are about to take.
My question exactly!
The Bank of Mommy and Daddy
She’ll be fine. Can you imagine the huge number of new customers she’s going to have, stressed out from the decline in their home values? She’ll be booked solid in the next couple of years.
LOL! nhz - I was thinking the exact same thing.
“Ouch, those falling knives hurt!”
“For Rachelle Amini, such developments strengthened her bargaining position when she found a two-bedroom condo in a downtown high-rise last fall. The 28-year-old psychotherapist says she talked the investor-seller down to $1.15 million, $50,000 less than he had paid for it in 2004. He also threw in two plasma TVs and a new white sofa.
Ok, let us do the math:
Best case scenario: 18-22, 4 years of college. 22-24 Master’s program. Years of income= 4
Who paid for college? Daddy!
Psychotherapist must pay a lot to qualify for over a million dollar home loan.
I think our friend Rachell may be reading self help books in the future!
The best part is that she thinks she’s getting a great deal on that TWO bedroom CONDO for over a million dollars.
And at the end of the day, psychotherapy is a luxury. While a lot more people will need it after the bubble bursts, many fewer will be able to pay for it.
This is my wife’s field, and believe me, we are not counting on that portion of our income to be stable. Half her income is from local government (San Diego!! — teen drug rehab) and the other from her private practice. I’m glad there are two sources, but they have weak underpinings.
And they’re still throwing up condo towers in record number in N. Va.
with people thinking they get a great deal at these prices (1 million for a 2-bedroom) it’s surprising that there are not more condo projects under construction …
News Papers are full of advertising for new condo projects. Its now standard for developers to offer incentives such as paid HOA fees, closing costs & cash at closing.
I have been watching several conversion projects that have been selling since Spring 05. They are still selling and the deals get better and better each month. Sadly, there are listings in these same projects from speculators trying to get more than they paid.
One project, The Crest, is over in Waterford Lakes. You can get a 1 bed 1 bath 793ft2 unit for 159,900 plus incentives. A speculator is offering the smaller unit of 734ft2 for 179,900. Only difference is the speculator put stainless appliances, hardwood floors, & painted the inside. I might swing by this weekend and offer the speculator 140,000 on it and tell him I could buy a bigger condo from the developer and invest a couple thousand on new floors, paint & new appliances and only end up spending maybe 165K.
Where is this Waterford Lakes? There would be investors queued up for miles to buy at 159,900 where I live. (OK, the Australian dollar is worth less than yours.) I’d even buy a couple myself :).
793sqft is actually a pretty decent size for a 1/1.
January housing market is looking weird (From the OC Register)
If the O.C. housing market acted normally in January, you’d expect the median home price to be $601,750. That’s a drop of 3.1 percent from December’s figure — the average change for the month of January during the past 17 years.
But why would anyone expect normalcy from Orange County home prices? Partial statistics for January, as collected by price tracker DataQuick, are a bit weird.
So far, the overall median for the 22 business days ending Jan. 27 is $582,000. That’s twice the usual January slippage, a decrease of 6.3 percent from December’s record $621,000, but 6.8 percent above a year ago.
Don’t take those figures to heart, though. If you look at just the overall median, you’d miss what’s going on in the three housing categories that comprise it — resale homes, condos, and new homes.
Prices held up for resale homes and condos, as lthe slow pace of sales got even slower:
For resale homes, the $665,000 partial-month median price was up 0.8 percent from December and 16.7 percent from a year ago. The number of sales dropped 22.9 percent from a year ago.
For condos, the $455,000 median was down 1.0 percent from December and up 16.7 percent from a year ago. The pace of condo sales fell 25.6 percent.
Slowing sales in those two categories may stimulate worries (or hopes) about an about-to-pop O.C. housing bubble, but the statistics don’t differ greatly from those of many recent months. The real weirdness was in the new-homes category, where the median price dropped drastically — presumably because of a change in the mix of homes sold.:
For new homes, the partial-month’s median was a mere $495,000, down 29.5 percent from December and down 36.1 percent from a year ago. A total of 545 new homes were sold, up 20 percent from a year ago.
Stay tuned for a report on full-month figures for January, which should be ready for publication in the Register later this week
The pro home-builders are undercutting the market and selling new homes for substantially less than resale prices. The flippers and specu-owners are getting screwed, but the pro builders are still making money - sales are up!
“Life is hard; it’s harder if you’re stupid.” - John Wayne
Exactly, and the numbers of resale homes are slipping while the median continues to rise because only the cream of the crop is selling there… the buyer’s probably think they are getting deals like Rachelle above… but they are really getting screwed.
“I got 5% off this gorgeous place… which will be worth 20% less in a year!”
“Life is hard; it’s harder if you’re stupid.” - John Wayne
“It shouldn’t be.” - FDR
unsold condo has resulting in an excellent rental for me.
4 bd/3.5 ba $1650/mo. new gut rehab.
compare to my prior 3 bd/1 ba for $1300 standard duplex
In the late 80’s, it wasn’t unheard of in North Texas for condos to be worth 25-50% of what the buyers paid for them. This is back when interest rates were 10-13%. I know at least one person who simply walked away when he had to take a job in another state.
If it has happened before, it can happen again.
Yeah… How does a 28 year old afford a $1million + condo? With a 30 year fixed & 20% down thats still going to cost $6500-7000 a month (taxes, fees and so on).
What bank is going to finance a 28 year old on that one? I don’t know about San Deigo but here in Florida the average person with a masters in Psycology makes about 45-50K a year if that.
With a double neg amortization loan she could get the payment down to about $1000/mo and then cash in the $750,000 in equity she has in three years when the payments go up.
Among other things, I’ve been keeping track of condo inventory in Va. Beach (on realtor.com) since last summer and as of today, we’ve finally hit a milestone:
8/5/05 185 condos median $300k
12/31/05 264 $303k
2/13/06 390 $285k
That’s right, as of today, the inventory has more than doubled, and note that it’s gone up 50% just in the last 6 weeks.
Yay! Another Va. Beach person… thought I was alone here.
I’m a lurker living in LA, but raised in VA Beach . . . I’ve been telling my father (who still lives there) that it’s time to roll out of his place . . . he says “real estate only goes up”. Ha.
Half the 28 year olds in Orange County are already retired, the other half can easily afford million dollar luxury condos. I wonder what they’re all going to do for a living when things get back to normal?
Why they can provide services for retirees obviously!
Condos are the first to lose value in a downturn, and the last to recover in an upturn.
How would you like to have a non-refundabledeposit on a Las Vegas Condo??
reviewjournal.com — Business - Club Renaissance will get built, developer vows
For Rachelle Amini, such developments strengthened her bargaining position when she found a two-bedroom condo in a downtown high-rise last fall. The 28-year-old psychotherapist says she talked the investor-seller down to $1.15 million, $50,000 less than he had paid for it in 2004. He also threw in two plasma TVs and a new white sofa.
Wow what a great deal, she just saved 50K on a 1.2M house, I thing the real winner was the seller, getting out while he/she still could. For Rachell, it is going to be a painful experience when in 2-3 years, her neighbor will buy a similar unit for 650K, lets just hope Dr. psycho does not throw herself down from her unit when the sheriffs come to throw her out.
lato1394
When I saw your post about Waterford Lakes, I was wondering if that was in the Orlando area?
if you’re looking for a high end high rise unit in orange county ca you have a choice of 25 available for sale through the MLS at The Marquee@Park Place Towers on Michelson in Irvine. Units range from approx. 1,275sf to approx. 2,000sf and are available from $759,000 to $1,350,000. Monthly association fee is $1,000+ per month.
Here in orange county condos (specifically Rancho Santa Margarita)that sold for around $200,000 FHA in 1989 and 1990 were sold by HUD (as foreclosed properties) in the mid 1990s at around $70,000. now those same condos are going for $350,000 to $400,000.
Something I’ve never understood about condos compared to SFH: The monthly maintenance fees on condos are probably double on average of what you would pay someone to mow your SFH yard and take care of your SFH pool. And you’re stuck in this mini-socialist society where nothing can get done but by committee and there are rules galore. What is the attraction of condos again?
That $1,000 offered by developer for referral of buyers is an illegal real estate commission to an unlicensed person.
And you’re stuck in this mini-socialist society where nothing can get done but by committee and there are rules galore. What is the attraction of condos again?
It keeps the damn kids off your lawn.
Seriously, the main attraction is price. The second attraction is not even having to deal with the contractors yourself. And thirdly, yes, some people like rules. And they LOVE to get on HOA boards.
For some people, socialist tyranny is their ideal state.
Price is a big attraction, true. Not having to deal with the contractors cuts both ways, at a condo, you have very limited choice if you get a bad one and you can’t fire them.
I guess if you are the top dog, socialist tyranny isn’t that bad.
Comment by lato1394
2006-02-13 08:01:11
Yeah… How does a 28 year old afford a $1million + condo? With a 30 year fixed & 20% down thats still going to cost $6500-7000 a month (taxes, fees and so on).
What bank is going to finance a 28 year old on that one? I don’t know about San Deigo but here in Florida the average person with a masters in Psycology makes about 45-50K a year if that.
I want to know how this person could afford a million dollar condo.
Most of the people that I know that have Psychology degrees are either unemployed or working low pay jobs such as retail or some government funded social work position. somewhere. It must suck to have to pay that much for a degree and then have to end up working for the equivalent of Walmart wages.
Do I still have to promise to feed the squirrels?
The Condos - Porter 156 in the article are in My other “neck of the woods” East Boston. In the Summer. my wife and I live in our tri decker with water view of downtown Boston (Paid for & with tenants on the other floors paying rent) These Condos are horrible one room lofts with the bed on a Mezzanine level in the living room . My wife and I have lived through previous busts in Boston went to the Launch party to snag some free wine in late ‘04. We left laughing at the audacity of the developers in their promotion of the development, They claimed that they had “almost” sold out the building! Ha! Not so it seems. The 20 somethings that bought are going to be in for a world of hurt as reality sets in… Nice view of Boston Logan Airport though!
Sorry, tried to add link to craigslist ad.http://boston.craigslist.org/rfs/133429351.html
there…
I think