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Tuesday, May 23, 2006

Video Report: Condo Craze

When you get some time, check out this King 5 video report on the condo craze. Robert Mak kicks off his report by focusing on a 23-story building full of $330,000+ condos going up in Bellingham. On his blog, he explains some of his thinking behind the report.

Don't get me wrong—Bellingham is a beautiful place to live. I've spent a fair amount of leisure time in the area. And no doubt, a 23-story building is going to have some spectacular views of the ocean and mountains. But you have to wonder—can Bellingham support condos from $330,000 to a couple million dollars? The answer apparently is yes—50% are reserved, including the most expensive penthouses.

It's just a sign that the condo craze is everywhere. One expert used the phrase, "a perfect storm." Demand from baby boomers trying to downsize, combined with young, more affluent buyers and investors looking for second homes have really pushed demand from all age groups. But here's what makes some people nervous. Is the condo market overheated? If the market tanks, are you safer investing in a single-family home, where you own a chunk of land? Are people going to get tired of the condo lifestyle after a few years?
Personally, I don't "get" condos. I mean, the monthly mortgage payment on a $330,000 condo (after putting 20% down) would be nearly $1,800. And most condos I've looked at have $200-$300 per month association dues. So why on earth would I spend $2,000+ per month on what is basically a glorified apartment, when I can rent a dang nice apartment for $1,500 or less?

I think that kind of reasoning is probably why condos historically are the first to fall in value when housing falters. Because I think a huge factor that influences people's decision to purchase a condo is the speculation—the thought that when they sell in three years, they'll walk away with $100,000 profit. Take that away, and what is the draw of a condo?

(Robert Mak, Up Front Blog, 05.19.2006)
(Robert Mak, King 5 News (video), 05.19.2006)

22 comments:

Anonymous said...

Belltown condos are selling from $500-$800 per square foot.

That is close to Manhattan prices, and as we all know - Seattle is not Manhattan.

I rent an 1100 sq foot apartment on 1st and Lenora for $1600. This is a smaller, upscale building built in 2001. The location is excellent (pike market, belltown, downtown, waterfront are all walking distance).

To buy this apartment would cost over $550k plus the association fees.

Needless to say, I'm currently a happy renter.

I think the condo market is WAY overheated. I like living downtown and I will consider buying if prices "correct". But for now, if you want to live downtown, renting is a much better value, IMO.

-Condo Anon

About me:

Owned a house in Magnolia - sold in '03 and moved to New Orleans. Back in Seattle after Katrina and waiting for prices to fall before buying - *if* I buy. I'm starting to feel that owning just isn't for me.

Peter Taylor said...

Again, I would like everyone to do a search on Google for leaky condos in British Columbia.

I owned one of these "leaky condos" in Victoria, B.C. and it was not a fun experience. Victoria was on the tail end of a big run up in real estate and everyone was assuring me that that I needed to "buy now" lest I be "priced out of the market". $25,000 in remediation costs 6 years later, I wish like hell I *was* priced out of the market.

I had a look at some of the new condos that are going up in Kirkland, and some of them have all the signs of being leaky - black streaks of mold running out of exterior cladding seams, NO roof overhangs to speak of, etc. etc. etc.

The thing about the B.C. leaky condo situation was that we all assumed that there were mechanisms in place to protect us - municipal construction inspections, a new home warranty program. However, when things started to go wrong it turned out that there was nothing. I see a lot of that down here when I talk to people about it - "Oh, that would never happen HERE." Uh huh.

Anonymous said...

God that was painful to watch. It seems like whenever there is a ridiculous urban planning/social engineering idea, Allied Arts is right in there telling us how we ought to live. I can't wait to go "promenading" down the waterfront while I get shook down by bums and druggies and scoffed at by the hoi polloi. "Diverse" neighborhood for people of all incomes, my ass. How ya gonna do that, Vogel? Tired bromides and populist bullshit until the City Council passes some other counter-market controlled economy measure whose costs will be inevitably passed on to the end user? Someone said recently that Nickles' vision is to create the largest gated community in America. I will agree with that.

Robert Mak is as milquetoast a reporter as this region has to offer. His "Aww Shucks" demeanor is perfect for the navel-gazing asses that are pouring into Seattle by the truckload. Pretty soon there will be latte-sipping sport stroller drivers as far as the eye can see. They will discuss Marxism over expensive red wines and vent about social ills caused by rampant capitalism, all the while exempting themselves from their own gentrifying influence.

The only thing worse than the reality of the condo market are the onlookers and commentariat who really think that what drives value is the "uniqueness" of Seattle and its wonderful vibrant high minded compassionate intelligent highly educated philanthropic diverse socially concerned population. To that I say: bullshit. People are here for a pretty view.

christiangustafson said...

Did you guys catch the story on 50-year mortgages on last night's news? They said there is only one broker offering them right now in the Seattle area, but spoke of it without too much skepticism, almost like it could be a real option for all of us soon.

Gee, no thanks. A 15-year fixed will do just fine, with 20%+ down. And only when 20% down is the standard again.

Yeah, Anon, I'm here for a pretty view, too.

Matt said...

I'm Matt, the young guy from the show, and have been a long time subscriber to this blog.

So why would I buy downtown? I'd be lying if I said that I wasn't at least partially speculating on condo prices.

But there are other valid reasons to buy as well. While renting is often times a great deal compared to buying in downtown Seattle, it is harder to rent really nice places. For instance, the finishes at the Meritage will completely blow the finishes away in my apartment, even though I live in a higher end Capitol Hill apartment building. The other reason to buy is because the place is then yours. You can not only get the high end finishes spec'd by the developer but you can do want you to the interior once you move in. I'm really looking forward to building the kitchen I want and laying out the interior I want. I can't do that with my apartment.

I agree that prices are high but you haven't convinced me yet that we're due for a sudden and dramatic correction in the downtown market. And also, vacancy rates are going down, and rents are going up, at least in the core downtown area so we may be seeing a narrowing of the price differential between renting and buying.

...I posted more about this on my condo blog, UrbnLivn.

The Tim said...

Hi Matt,

I agree that there are definite benefits to owning a condo over renting an apartment. I guess what I'm trying to say is that the large premium that must now be paid to own is just not worth the perks (to me, anyway).

Also, to respond to your comment that "you haven't convinced me yet that we're due for a sudden and dramatic correction in the downtown market," I would say that while many of those commenting here are predicting a "sudden and dramatic correction" across the board, I don't think you'll find that I have made such predictions. In fact, the only firm prediction I've made (from the beginning, even) is that double-digit appreciation cannot continue, and that's more like stating the obvious than making a prediction.

I did outline my best guess timeline, but you will notice that even that I only described as a "(very) rough guess".

Another thing you'll notice in my first few posts is that the stated purposes of this blog do not include "trying to convince people of my bubble beliefs." Honestly, I'm still just interested in "news and discussion" about the possibility of a bubble in Seattle.

Keep up the good work. Your blog is on my daily reading list as well (Bloglines rocks!).

Anonymous said...

Matt-

I'm not surprised to hear that you do not expect a downturn in RE.

In general, those who are still buying, whether for their own use or for speculation do NOT expect a downturn.

If they did, they would not buy now. They would wait for the downturn and THEN buy.

I expect a downturn, so will wait for that to happen before I buy. I expect to save quite a bit of money on the purchase price.

Peter Taylor said...

Matt, good comments. However, and I hate to keep harping on this, there are a lot of hidden risks with buying a condo. People assume that a condo is just a house in a big building, and that's not quite how it works.

I assume that you've done your homework and checked out the developer's track record, checked out the construction materials, checked out the construction technologies the contractor is using, checked out the laws that apply to condo homeowners associations, etc. but a lot of people don't do this. And the developer and real estate agents bank on you not doing this research.

So, if you're buying and planning on holding the condo for a long time, you'll need to give some thought to what you'll do with the property in the future. Rent it out? Will your homeowner's association allow it? What's their plan for the upkeep of the common areas? What's the parking situation like? Is it secured? How secured? How much will it cost to have the parking garage secured if it isn't?

My point here is that what is important to you now is probably not the same as what will be important to you in the future. If you'd like to avoid some unpleasant surprises in that future, do yourself a favor and decide what your plan is with respect to the condo and do some research.

Matt said...

Peter, you raise a lot of valid points that I'm sure many people never think of. But while I am a first time condo buyer, this isn't my first real estate transaction, and I'm applying the same due diligence to this that I'd apply to a single family dwelling.

And for what it's worth, secured parking on Capitol Hill is a misnomer. Your car is safest on the street, not in a secure garage! :)

Anonymous said...

OMFG!!! Are these people on GLUE!!! Have they not heard of cities named Miami or San Diego! What utter catastrophic fools!!!

HAHAHAHAHAHA!

What a smaltzy puff-peice!

DOT-CONDO Folks, DOT-CONDO!

the 'other' matt said...

Matt-

Just curious what type of mortgage product you secured for this purchase and what percentage of your monthly income is going to this mortgage?

Anonymous said...

OMFG!!! Are these people on GLUE!!!


What I don't understand is why people in their twenties are so anxious to clap themselves in irons--surely 'finishes' can't be worth it--

Anonymous said...

Those Bellingham condos are genuine bargains! Considering the city's vibrant nightlife, booming job market, warm, sandy beaches, and beautiful people, they're sure to double in value by the time they're built!

Anonymous said...

anon 7:16

I think you have you're U.S. map upside down... you're thinking of the other condo-bubble city, Miami

b'ham res said...

Well, Anon 7:16 is obviously being facetious in his/her comments. And astute comments they were.

As a Bellingham resident, I can tell you that, out of all of the WA areas this is the ONE area that is trully poised for a massive correction.

The overbuilding here has been awe-inspiring. In one day last month, the inventory DOUBLED from newly built homes. And it is rising every day.

So I look for a huge fall off in prices here. And really cheap rentals.

Not a brilliant place to park your money this month (or next).

Anonymous said...

nice rent vs. buy calculator:

http://www.dinkytown.net/java/MortgageRentvsBuy.html

Anonymous said...

oops!
try this:
http://tinyurl.com/bkecn

Matt said...

...I haven't settled on terms yet. But I expect the mortgage+HOA+tax to come in under 35% of my current gross income (and that's assuming a low down payment).

Anonymous said...

My Baby Boomer parents are not looking to get into a condo. They are actually selling their condo and looking to rent a smaller place so they can travel.

Predictions about how one segment of the population will behave don't always pan out.

Many of the boomers in my family are migrating to central Florida and Costa Rica. They are seeking warm weather and low cost of living. Some of them want big houses with lots of exta rooms for when the grandkids visit.

I can't picture any of them living the 800 square foot downtown condo lifestyle.

Anonymous said...

Downtown is rather lacking in some basic day to day things like, oh ...I don't know....grocery stores?

Anonymous said...

Seattle's housing (including condo)price is still 40-50% lower than many major west coast cities. The people live here (HighTech in particular) are NOT making 40-50% less. So, buying power is still there. For a combined income of 150k+ young couple (two college grats), 400k condo is within their range. The question is whether they like donwtown's life style. Don't forget, HOA pays landscape + water and some other things. You DO have to pay HOAs if you live in a decent area regardless a condo or not. You also have a cost for landscaping, water, sewer...

The worst crash I ever heard about in recent years was housing at HongKong because of taking over by mainland China in 1997. And, their prices are coming back and will take a few more years to break even but it is coming back. Do you think we have that type of risk here? I don't think so.

b'hamster said...

I've heard the market is softening here in B'ham. You'd never hear that from the realtors.

I am amazed at the development going on all over as the market continues to soften nationally. Oh, "but it's different here" in Bellingham. I heard that everywhere that I traveled this summer, as the bottom's falling out virtually everywhere.