Washington Condo Developers See ‘Writing On The Wall’
The Washington Post reports that thousands of condos are becoming apartments. “The surge of well-to-do new renters is attracting developers, and at least 4,000 units that had been planned as condos will instead be leased as rentals over the next two year.”
“Among the renters is Randell Rogers, a systems engineer who earns $127,000 a year and recently sold a house. The housing-sale slowdown and sky-high prices have made him wary of buying again, and he is renting a two-bedroom townhouse in Herndon for $1,400 a month, about half of what he thinks he would pay each month if he bought a similar townhouse for about $450,000.”
“‘It makes more sense to rent this year while values keep going down,’ Rogers said. ‘Even with the tax break, it doesn’t make sense for me. It’s just not reasonable to buy.’”
“Other affluent families are doing the same. Laura Holliday, and her husband, tired of the chores associated with homeownership, the heavy mortgage payments and the hassle of commuting each day to the District from the Mount Vernon area of Alexandria. They sold their house in July 2005 and moved to a townhouse in the Clarendon area of Arlington, where they can commute to work by Metro and have more time to spend with their two young children.”
“‘We probably won’t rent forever,’ Holliday said, ‘but for now, we are definitely enjoying renting.’”
“‘Every large developer I know is working on a project that was expected to be condo, and that they are now taking back to apartments,’ said Mark Coletta, (who) is building about a dozen projects in the Washington area. ‘That’s what everyone is doing.’”
“Stephen Muller, who is building a 183-unit project, said he began considering the shift after a well-heeled family rented a single-family house he owns, saying they did not think it was a wise time to buy. ‘I think it’s frankly smart,’ he said.”
“Coletta said he was influenced by the performance of Fairfield’s condo projects in Fair Oaks, Herndon and Germantown. ‘All are doing fine, but we’ve clearly see fatigue on the part of the consumer,’ Coletta said. ‘Traffic has dropped off, contracts have slowly declined. You see the writing on the wall at the same time apartment fundamentals are improving. It makes the business decision a pretty easy one.’”
“Developers who proceed with condo plans face a flood of competitors. There are some 26,600 condo units being marketed in the Washington region, up from about 23,100 in the same month last year. But there are some 48,000 units moving toward construction.”
“Economist Gregory Leisch said that condo developers increase the base price of units so existing owners and new buyers feel confident they are buying into a rising market, but that then they offer concessions, better appliances and upgrades, picking up part of the closing cost, so new buyers think they are getting a good deal.”
“‘It’s the old shell game,’ Leisch said. ‘You increase the price to reduce the price so after all that nonsense, the price is unchanged. Car dealers do it all the time.’”
Unbelievable. Yet, very believable. Will be the trend across all of the major bubble areas.
OT - Is someone who earns a $127K salary affluent anymore. It’s a good living, but inflation and the current tax code devour that salary.
Well he’s a good 50% above the median houshold income for his county and just a little shy of the highest 5% of national household incomes. I’d say that that salary certainly gives a good foundation for affluence. He sounds financially wise but most peoples definition of affluence is based on assets rather than income.
I’d say he’s more than a good 50% higher than the national median. I thought median household income was somewhere in the ballpark of $45-$50K. No?
In his county (Fairfax Co) median household income is roughly $80k. He’s well more than double the national average, but cost of living is much higher herem, I referenced the county to begin to explain that. It’s not published except in quintiles, but he’s probably near the 90 percentile nationally.
Inflation may devour salary increases, but I fail to see how it devours the salary itself.
I’d have to say if you are single, no kids, then 127k is a very, very good income.
Throw in a wife and two kids and that income is seriously devoured!
Exactly - forgot to mention the wife and kids!
i wish that i was receiving that much
So I started a blog to hit on the Hampton Roads (Southeastern Virginia) market. I drop links to it on craigslist. I got a posting from someone mentioning a new condo development in our area (Virginia Beach) which is completed, and completely full of for-sale signs. Camera in hand aiming to score a picture for the blog here of a ton of forsale signs on a corner I headed over there. Since the condo units are right on top of each other with only a really small patch of grass, the signs are all so close to the units that it makes it impossible to get a picture of more than 2 signs. But in this new development, almost every little road has 2 of them on it, some 3. It was amazing! And the units are right on top of each other. It looks like a pac-man game, where the power pellets are for sale signs and the ghosts are cars coming and going.
There is definitly bubble trouble here in Virginia Beach (The prices are out of the reach of the middle income residents as well… People are happy to defend their house prices but if you ask “Uh, could you afford to buy a house like you have today on your salary using normal financing” it’s a “no way!” answer generally. $300k+ starter condos for a region that has a median household income around $60k
I think this is one of the true indicators of the housing bubble; that virtually noone that owns a house, regardless of when purchased it, could afford that same house for what they think it is “worth” if they had to buy that same house today with conventional financing.
Agree. Definitely the case in our area. I’ve read that about 80% of the people in San Diego couldn’t afford to buy their own homes, IIRC.
Yes, but that has been the case for generations. In California it got so bad that people couldn’t even afford their real estate taxes and they had to throw in Prop 13 to freeze the tax rates for some.
That may be true for retirees (sp?), but not for middle-aged, middle-class workers who owned their own homes. Prop 13 was (and still is) a very necessary proposition which protects homeowners from RE bubble volatility. CA is a very volatile market, and always has been.
Really? For generations? Didn’t these people buy the house that they’re living in? I think that the evidence shows that people and their parents DID afford the houses that they bought awhile ago. I think this shows that you have to use those “Affordability” guidelines with some caution. I think that we can say that historicly, people have been willing to pay a larger percentage of their incomes to live in places like coastal California or Manhattan. Just because some bureaucrat decides that you “shouldn’t” pay more than 30% of your income on housing doesn’t mean that you can’t actually make the payments. That’s the “It will never be cheap to live in San Francisco” factor and we have to divorce that from the huge real price runup in the last few years if we are to examine how bubbly the market is.
Rather than seeing what percentage of people can afford to spend 30% of their income on a median price home, it would be more instructive to track what percentage of income people at various deciles have spent on houses historicly and how that compares to now.
VaBeyatch, I live in VB and I see for-sale signs in front of condos everywhere - and they’re still building! Where is the development you’re referring to? This is definitely a bubble area. In addition to out-of-whack prices, inventory continues to climb.
http://www.benengebreth.org/housingtracker/location/Virginia/Norfolk/
Hello, the development I was referring to is Carraige Hills at Towne Square. I wasn’t familiar with it until someone else posted about it on a blog.
I’ve seen at least one unit in the building next to the Rotunda up for rent on Craigslist, and it doesn’t seem like it would cover the costs of the unit (assuming 20% down, low financing).
People are still buying though!
127k a year is an excellent salary.Sounds like DEWFL is a bit jealous. Remember it is not how much you make but how much you spend. I have several friends that make well into the 6 figures, yet they have no savings and lots of debt. Big fancy houses, new shiny cars, lots of shoes and just lots of stuff.None of which is paid for. Everything on credit. As for me, I took a different road and have been a big saver all my life, absolutely NO debt. I sold my house late 2005.I creamed the 23 years of equity out of my house and am sitting on the side lines for 2 years. I’ve seen this bubble burst in 1990 and believe me it is going to be even worse this time.I’m in the camp of renters. Here in southeastern Connecticut the market is very soft. High inventory, lots of foreclosures, layoffs at Pfizers and Electric Boat. Cash is king in this market.
Good for you. People have to realize that 127K in DC does not get you very far. Living in DC is expensive, ahead of Miami and Boston. The cost for housing, car, insurance, etc, will eat large portion of the salary. If this guy is only one who works in the family, while his wife has to take care of kids, 127K is not much for this household. If he is working as contractor for some federal agency, he may not even have health insurance and has to pay it from his own pocket. However, I agree with you, it does not matter, how much you make, but how much you spent.
I did exactly the same. Sold my house in Oct ‘05 after 15 yrs of owning. Now renting. I also saw the bubble burst in 1990 and had sold 1 month before it came to a screeching total halt. I knew it would happen again.
No jealousy here. I make plenty of $$ for my life style. I believe that the use of the word affluent is misplaced here. IMO, an affluent person wouldn’t concern themselves with house prices - an insignificant cost when affluent. $127K is far from affluent.
I agree with others that 127k is not affluent in the area. It is about average. About half of all households makes more than 100k in fairfax county. Many of those make significantly more. Most federal contractors are employed by large firms and get decent benefits. There are a small percentage that work as a 1099 but that is rare and usually only for temporary work.
agree. . my wife and i makes about 140K combined here in farifax co. and we by no means have that good a lifestyle (even though we rent and have no kids). .
can’t imagine what it’d be like if we buy now..
This article is momentous because it signifies a shift in mentality. The masses are realizing the economic benefits to renting, and the bag holders should seriously be sweating the fact that this mentality shift has occurred.
Well said Dukes.
Agreed…
That was also the first thing I thought when reading this article.
Mass media speaking of the benefits of renting, when everybody knows renting is just throwing money away!!
This is 180 degrees from what they were spouting about renting just a year ago…
I live in DC and we just looked into renewing our lease and our rent is NOT going up. Does anyone know who these Delta Associates people are? Just wondering if their data is reliable.
Another anecdote, mine was up 4% in Alexandria. It’s still one of the cheapest walk to the metro one bedrooms in the area I’ve seen, and I love the view. Still might see if they will cut the increase to 3% or thereabouts. From friends in Arlington it sounds like most of the big increases occured there.
I live in Arlington and there are deals to be found. I think the increases are in “high-end” apartments in Clarendon area.
I live in the “high-end” area in Clarendon and my rent went up 4% last year. The cost of owning a similar condo would be twice want I am renting.
Even though the cost of owning is twice the cost of renting, maybe I should still buy.
If I run into money problems, I always could cut some costs..like getting a low-maintenance hairstyle
Fairfax City, landlady asked for a 6% raise, I offered 2.5%, we settled on 4%. My understanding is that the HOA fees went up for this condo more than the increase in my rent.
At the end of my two-year lease my rent is going up a little more than 4 percent. Two thoughts: maybe landlords are raising rents more for new renters, or, who is Delta Associates? I am suspicious because the article says nothing about who they are or how they got their data.
OT, Saw a new Remax ad: a little girl says she wants a big house, the mother says she wants an affordable home…. fast forward to the 2 of them walking across a lawn with a Remax ’sold’ sign and an agent walking toward them smiling. The voice over says something like, “Remax, now with more homes than ever listed for you to see.”
Trying to make an advantage out of the glut? Interesting!
My rent in Silver Spring, MD, and inner suburb of SIlver Spring, MD is going up 3.3% in September. The rent is for a single family residence.
David
http://bubblemeter.blogspot.com
Interesting conundrum for the Fed. It decided to go with the rent-based CPI and ignore soaring housing prices while keeping interest rates low from 2001 to 2004. Will it now restrain its increases, despite a soaring rent-based CPI, because housing prices are falling? Makes it look like a “Bernanke put.”
Of course the next phase, which could hit in 2007, is falling housing prices AND rents as the former owner-occupied inventory shifts to the rental sector.
Soaring CPI is one thing, but it won’t be (so far) driven by rents. From scattered evidence on this blog, it seems that rents are going up from 0% to 5%, with an average somewhere in between, I’d say. That’s not too far off what you’d expect in a low- to modest-inflation environment.
Interesting times indeed. As I see it, BB will need to keep raising rates to hold down long term rates. If he doesn’t raise, 30 year mortgage rates will climb faster than if he does. Different segments of the RE market suffer in each scenario. And elections are on the horizon.
Rents are not soaring where I am in east central Florida — they are declining, as more stuck flippers put their properties up for rent. What has been easy to overlook is that speculators bought empty units and kept them empty. When those units go up for rent, they are not displacing/replacing anything — they are adding to gross rental inventory and that will force rents down. In the Sunshine State, at least.
He could just heave rents over the side on the CPI. That seems to be the approach to anything that goes up in price that is in the category of needs.
http://www.mccorkleplace.com/index.html
Here’s a project that was going to turn 700 dollar a month student apartments into 1 million dollar condos. Apparently the plans are falling apart. They’ve already kicked out all of the residents for constructiont that was supposed to have already started, but now the bank is balking because they havent been able to get firm buy contracts from enough people.
multiple this fiasco by 1000000x and you’ve got the USA.
Only 4 left! Better hurry!
Four out of eight isn’t so bad! If they follow the norm as of late for HBs, approximately 28% cancellation will result in 5 out of eight available. The bank is not happy yet!
I live in DC as well and I’m completely priced out of the market there for buying a property. I think most of the condos that will now be apartments will be paid for by folks who probably could afford to buy, but choose not to do so. That is very different from someone who earns only the median income in the area. Median income earners will either face small rent increases, get roommates, or move back in with mom and dad.
I see near my place two military families sharing one townhouse. Friend who works for DoD and already retired from the service rent house to two other military guys, so he can split the cost of the mortgage. There is no way that gen-X can own place without inheriting it from the parents while earning DC salary for some Fed. agency.
I guess my problem with DC is that it is priced as if every part of the town is Georgetown when it really isn’t. I’m a DC native from Anacostia in Southeast DC. I’d love to give back to that community, but all I see is 250-300K fixer uppers. I can’t afford that. I’d like to own something without having to get a part time job to pay utilities.
And remember William McCorkle? He was some schmuck who was on TV about 8 yrs ago pimping that he could make you rich in real estate. He was showing big cars, planes, boats, houses, etc as his. His ass (and wife also) is rotting in prison in Florida because he was a scam artist that got caught. Is this place named after him?
scams abound in such times; here’s an example in Vancouver (some pre-sale buyers are going to be totally screwed):
Partnership ordered to cease selling condos
David Baines
Vancouver Sun
Tuesday, July 04, 2006
The B.C. Financial Service Commission has ordered a partnership to cease marketing units of four real estate projects after one of the two partners sued the other.
FICOM executive director Alan Clark, acting as B.C.’s superintendent of real estate, issued the order Friday after George Dengin alleged that his business partner, Mark Chandler, misrepresented the status of the projects and failed to account for the sale of dozens of units.
The projects are Garden City Residences, which consists of two mixed-use towers in Richmond; Hamlin Mews, a 21-townhouse development at 37th & Oak; Tribeca Lofts, a 52-unit condo project at Richards and Nelson; and H+H, a 22-story condo tower at Homer and Helmcken.
The projects are being marketed by Rennie Marketing Systems Ltd., which is owned by Bob Rennie.
Clark said disclosure statements previously filed in connection with the sale of these projects fail to reflect the fact that one partner has sued the other, that the properties have become encumbered by various mortgages and liens, that Chandler may not have placed deposits from purchasers in trust, and that Chandler may have sold one or more units to more than one purchaser.
The partnership was formed in 2003 after Rennie introduced Dengin, who was his stockbroker, to Chandler.
Unknown to Rennie, Chandler had been charged with 13 charges of fraud, theft and forgery in Arizona. In May 2003, he entered into a plea agreement and was ordered to pay $189,500 in restitution, placed on three years’ probation and deported to Canada.
Chandler’s lawyer, Don Haslam, has dismissed Dengin’s allegations as “misguided and misdirected.”
oops, by “pre-sale buyers” I mean “pre-construction”.
Most of these developments were sold out during pre-constrution and now it’s going to get ugly when some buyers find their ‘investment condo’ was also sold to other buyers.
“The Washington Post reports that thousands of condos are becoming apartments.”
But rents are still going up, right?
Yes but not for long. Rents here in Florida are rising 10-20% annum right now; once the condos are rented back into apartments, it will be a bloodbath.
I’m just hoping they don’t turn those $1,000 apartments into $2,000 apartments. Been trying to stay on top of rentals as I believed, even in 2004, that rentals would initially go up as the bubble was turning. Still think they will go down eventually, but we don’t know when that is. Anyway, there are ugly apartments in Vista (not a particularly nice area) going for over $2,000/mo. Nothing nice about the complex or anything.
Example of rising rents: we rented our house in 2004 for $2,000/mo., and there were very few good renters/plenty of cheap rentals available. Right now, our house would rent for **at least** $2,400, a 20% increase, and it would rent within 4 weeks, tops. I see rentals snatched up very quickly while the “for sale” ones sit for months.
Brings me to my other question: how many people have sold and now rent? There might be quite a few of us (or maybe I’m biased by this blog), and I’m wondering if that will affect the downturn. Thoughts?
I sold in 2003 (because of personal reasons, not bubble reasons) and have been renting since then. We pay $1550 for a 2-bedroom 2-bath apartment in Playa del Rey, CA. It’s an ‘ugly’ 60s building, but a large, nice apartment close to the beach and across the street from single family homes selling for well over $1M. We’ll happily ride out the bubble/bust here
IMO, the older buildings quite often have the better apartments. Nice, large rooms, smaller complex (more neighborly), and long-term tenants. Good for finding that one.
Moman — rents in Brevard County are droppping, not rising or eve staying the same, particularly for high-end stuff.
I am fairly familiar with the tech industry in the DC/VA/MD area and I think a Systems Engineer earning $127K is very unusual unless he is talking about contract employment–contractors are generally paid much higher than salaried permanent employess, but have no benefits (good health insurance for a family costs more than $12,000/year) and can be easily terminated. With all the Homeland Security related contracts going around, I am not surprised at that level of earning. I think Fairfax county’s median household income is something like $85K and places like Vienna/Tysons Corner/Oakton, and Bethesda in Maryland have median household income like $120K.
But even with such median incomes, housing prices are way ahead of fundamentals. I think Post columnists have been rather timid in calling it a bubble and have even encouraged people to buy, saying it is hard to “time the market.” When this bubble is so obvious, when even Warren Buffett, George Soros and PIMCO guys agree it is a bubble, it is silly to encourage buyers to pay exorbitant prices for housing.
I know personally 4 Systems Engineers in DC. They are very well-qualified with degrees. Two of them (in their 40’s and 50’s) work for DoD contractors and earn just a little more than 100K with nice bonuses.
The two others are in their late 30’s (with kids and non-working spouses) and are struggling with incomes of 90K and 70K.
Check out http://www.salary.com and you’ll see what the “averages” are. Management is a bit different, of course.
I’ve been anticipating and budgeting for a rent increase for two years, but it hasn’t happened. Hope my luck holds. (I live just outside DC.)
Around here, it’s impossible to buy anything without a suicide loan. At reasonable mortgages, even that $127K is barley enough for a 2Br condo, not to mention a SFH of any kind. Decent condos within commuting distance are $300K. 1950’s SFH tract boxes less than 1000 sq ft are zillow’ed at $450K.
The freebie paper’s Condo Living section is all about “urban living.” I think it will become less painful to read, less peer pressure.
this is exactly why i believe that rents will stay flat or go DOWN, not up as many bubble-heads have predicted.
My post didn’t show up before, so I hope this isn’t a duplicate.
From the article:
“About 6,500 additional renters leased units in the past year, up from about 4,400 in the previous year, according to Delta Associates. The Washington area has one of the lowest apartment vacancy rates in the nation, down to 1.7 from 2.4 percent a year ago, compared with a national average of 5.7 percent.
The rent increases are confounding industry expectations that rents would fall because of the huge number of new condominiums, many of which were sold to investors who have put them up for rent. Experts say prices would rise even faster without the additional condos.
Even so, rents are expected to rise 5 to 9 percent annually over the next few years, said economist Gregory H. Leisch, chief executive of Delta Associates.”
The main thrust of the Post article is that rents are rising, and that inventory is down in the “Washington area”. But I’ve been keeping track of the rental inventories in Northern VA for over a year, and it’s obvious that they are increasing - in our neighborhood, mostly due to failed sales.
5/8/05
Prince William ——- 383
Fairfax ————- 1,134
Loudoun ————– 318
5/26/06
Prince William ——- 533
Fairfax ————- 1,012
Loudoun ————– 403
7/06/06
Prince William ——– 662
Fairfax ————– 1,268
Loudoun ————— 509
I’ve also received more foreclosure referrals for 2006 loans in Fairfax. Nobody is interested in them because they’re overvalued. The banks are going to eat these and place them into their REO inventory. Once the inventory reaches a certain level, the banks will slash the prices to get their capital back. This will precipitate larger price cuts in the general market. I give it one to two more quarters, then the market goes into freefall.
DC here (Adams Morgan).
Rental vacancy rates in DC are down, but they are still higher then when I moved here in 2002. Rents are fairly stagnant, the rise in average rent appears to be driven by an increase in the quality of the rental stock (all those new luxury rentals in Logan and Chinatown), not necessarily a tightening of supply (although condo conversions have cut into the rental supply somewhat, homeownership rates in DC have increased too). My own rent hasn’t even kept up with inflation since moving to DC four years ago - and that’s fairly representative. But there’s a lot more rental stock in the $2400-$3000/month range, with the addition of new luxury rentals and all these investors putting their condos up for rent.
Exactly - I’ve noticed that $2,200 last year got you a nice 4-bedroom 3-bath vinyl-siding colonial in this neighborhood last year, and now it gets you a 5-bed 4 1/2 bath McMansion. http://www.homesdatabase.com/FQ6071867. I also viewed an 800K house for sale or rent (for $2,200) with an amazing home theater and viking range in the kitchen, a mahogany bar in the basement, and an expensive grill on the deck, in Haymarket, VA. (But not a good yard, so we nixed it for the kids).
Stone Front with vinyl siding. Very classy. And 5100 sq ft.
“But there’s a lot more rental stock in the $2400-$3000/month range, with the addition of new luxury rentals…”
“luxury rental” kills me. folks can financially engineer/shoehorn themselves into a mortgage, but rent is about cash flow.
using the rule of 72 do figure out how long it will take to double rents.
2%=36 years to double rent
3%=24 years
4%=18 years
5%=14 years
most people seem to be holding for 3-5 years.
if you were renting for 5 years, rents would have to increase 14.40%/year to double. 24% if you were renting for 3 years.
One bubble criminal just bit the dust and is now where a higher power will judge him. Many bubble owners are going to have a similiar fate, due to their own personal stress. Even if they didn’t do anything criminal (like this scumbag did).
HOUSTON - Enron Corp. founder Kenneth Lay, who was convicted of helping perpetuate one of the most sprawling business frauds in U.S. history, died Wednesday of a heart attack in Colorado. He was 64.
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The Pitkin, Colo., Sheriff’s Department said officers were called to Lay’s house in Old Snowmass, Colo., shortly after 1 a.m. Mountain time. He was taken to Aspen Valley Hospital, where he was pronounced dead at 3:11 a.m. Lay, who lived in Houston, frequently vacationed in Colorado.
Family spokeswoman Kelly L. Kimberly issued a statement saying, “Ken Lay passed away early this morning in Aspen. The Lays have a very large family with whom they need to communicate. And out of respect for the family, we will release further details at a later time.”
Pastor Steve Wende of First United Methodist Church of Houston, said in a statement that church member Lay died unexpectedly of a “massive coronary.”
Wende said Lay and his wife, Linda, were in Colorado for the week “and his death was totally unexpected. Apparently, his heart simply gave out.”
Lay was scheduled to be sentenced Oct. 23. He faced decades in prison
“Kenny Boy” might have been whisked away to the safety of a central american country with a staged death to avoid his sentencing.
yeah, he looked a lot like Jackie Treehorn from Big Labowski, and i haven’t seen that actor in anything recent… hmmmm
Wouldn’t surprise me!!! He took enough money from the workers pension fund to finance it!!!! I was furious when I saw that pig died!!! But I do believe there is justice where he’s going!!!
He was still able to take long vacations in Colorado, while many of those he ripped off will never get a retirement thanks to him.
I rent an old, dumpy apt. in Arlington, VA for about $950. That’s way below typical apt. prices around here–of course, having window units, radiators, and non-level floors probably explains a lot.
Interestingly, though, our rent has only increased about $50 per month since we moved in about 4 years ago. Some of that is because our LL likes tenant stability, but I was really worried that our rents were going to jump along with the rise in housing prices in our neighborhood (we rent a unit in a converted house–might have been a boarding house in a previous incarnation). Anyway, I’m not so worried now, and I can’t imagine actually buying in this neighborhood. Great location, but dumpy little 100-year old houses on small lots are just not worth $800,000. A few are still selling, but most on the market are sitting there…
I’ve noticed that rents on townhouses and SFHs in other neighborhoods I’ve lived in around here are pretty stagnant. I rented a TH in Woodbridge for $1150 between 2000-02, and THs in that area are currently averaging only about $200 more than that, based on listings in the Post. You could probably look around a bit and do even better than that. This area is STAGNANT. The bubble is over here.