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Wednesday, July 12, 2006

Yet Another Condo Conversion Article

Here's yet another article in the Times focusing in on condo conversions:

In the first six months of this year, 1,162 Seattle apartments have become condos or are headed for conversion, a pace that would far exceed last year's total of 1,551 conversions.

The trend is happening outside Seattle, as well. Last year saw about 4,000 units converted to condos in the Puget Sound area, according to Dupre+Scott Apartment Advisors. Those conversions resulted in a net loss of apartments because they exceeded the number of new rental units built.
John Fox, coordinator of the Seattle Displacement Coalition, a group of low-income-housing advocates, said the city's response to conversions has been weak. Fox recalls a similar condo surge in the late 1970s that led then-Mayor Charles Royer to impose a temporary moratorium on conversions. Fox said city officials should consider another moratorium.

"It should be a subject of grave concern, but we're sitting on our hands, by and large," he said.

Others, such as Ring and Adrienne Quinn, the city's housing director, say more information would be helpful before Seattle acts. It's not clear, they say, how many low-income renters are losing apartments to conversions. And, on the positive side, they say conversions are increasing home-ownership opportunities, particularly in the $250,000 range.

"It isn't peachy and good. But it's more complicated than it usually looks," Ring said. "One of the things I don't know, and I'd like to know, is who exactly is being affected by condo conversion."

City Councilman Tom Rasmussen wants the same answers, so he's created a committee that he hopes will provide recommendations about Seattle's apartment market to the City Council.

"For the most part, the people I hear from are not able to buy their units, and we don't want people to have to leave the city," he said.

The bottom line, according to real-estate experts and developers, is that conversions are being driven by Seattle's job growth and hot housing market, which has shown a strong appetite for condos, making it lucrative for apartment building owners to sell.
Still not even a passing mention of converted condos going back onto the rental market. I'm not saying that is happening en masse, but I know that it is happening, and I am disappointed that it isn't even mentioned in an article like this.

I certainly can't say that I blame apartment building owners for jumping on the condo conversion bandwagon. With rents having been virtually stagnant the last few years while real estate prices have shot through the roof, converting your apartment building into condos is like winning the lottery—for those that get in before the market stagnates/drops, that is. Or do we all really believe that people will continue to happily fork over $250,000+ for a tiny studio apartment in a run-down building from now until eternity?

(Bob Young, Seattle Times , 07.12.2006)
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gomer bolstrood said...

Of all the consequences of the housing bubble, this one makes me the most upset. Why should I be willing to pay above-market rates for a an apartment unit, just because some moron thinks it's OK to leverage himself to the gills to buy it out from under me?

And that "opportunities" for home ownership? Give me a break. How about "new opportunities for indentured servitude"? Because, honestly, that's what is going on every time a market-rate apartment is converted to an overpriced condominium.

Write your city councilperson, and tell them that you want a moratorium on this insanity, before it's too late!

Lake Hills Renter said...

For the life of me, I will never understand why someone would want to buy an apartment.

richard said...

Nationwide, about 40% of condo conversions go back on the market as rentals. In highly speculative markets, the percentages I've seen are considerably higher.

I'd imagine Seattle is at least at the national average. It would have been helpful if the Times reporter had included this stat.

spokes said...

This "report" also completely ignores the repartment trend and what can happen if you get stuck in a building that isn't fully sold because the market went soft. See related topic on today's housing bubble blog regarding the pitfalls that owners face.

plymster said...

Hmmm. Let me do the math real quick:

Monthly Costs buying converted condo for $250K (20% down)

$1000 - interest (avg, until 2013)
$ 208 - profit I forego with $50K in a measley 5% CD)
$ 250 - HOA dues
$ 200 - taxes
$ 100 - maintenance
$1708 - total monthly expense

Note: The above does not take into account principal payments.

So people see these $1000/month 1 br apartments saddled with 70% more monthly expense as condos, and they think, "Wow, I gotta be a homeowner before I get priced out!"

These yutzes deserve what they get when the bubble imlodes.

easthawaii said...

Or do we all really believe that people will continue to happily fork over $250,000+ for a tiny studio apartment in a run-down building from now until eternity?

With the exception of you folks on this blog and Ben's blog, everyone I met in Seattle during my five week visit is a believer. Guess I'll stay in Hawaii for another year or two, where prices are headed south and fast.

Anonymous said...

Land appreciates, little boxes in the sky only depreciate.

Anonymous said...

It seems we in Seattle like to celebrate egalitarianism and progressive social agendas, but this apartment/condo thing is a blight, makes us all look like hypocrites. We celebrate a statue of Vladimir Lenin on one corner and turn an elderly mother out on the street for a quick RE profit on the other... whatever Seattle...

Anonymous said...

This is a bit off subject, but I just have to vent.

I just pulled the loans on a house that was being flipped down the road from me. It had sat empty for almost a year. It was purchased by someone out of California about a year ago with no money down ARMS. It was relisted for about 100K over the purchase price and put right back on the market. It recently sold to a young couple and the loan was just posted on the county website. I pulled the loan, or should I say loans. The financing consists of two piggy back adjustable rate mortgages with balloon riders and as usual, no money down. The starting interest rates are almost 8% and will adjust in three years. Then its tied to the libor plus almost 7%. This is a young couple who I have met and who have indicated that they would like to start a family.

The question I have is.... Should I call the state attorney general and turn this in as preditory lending?

I got curious and ran a number of other loans in my area. All are subprime loans. All are ARMS and interest only loans.

My God!
We are doomed!

PepeDaniels said...

I couldn't agree more with the general tone of posts in this thread. The negative effect of the bubble on housing options for people is probably the principle reason I'm even interested in the topic.

Many people had decent opportunities and career options in Florida. Thousands of people have been saying screw it and leaving that state over the last 12-18 months due to the bubble insanity. The low unemployment, and good career possibilities don't mean a thing when everyone gets priced out due to RE insanity.

I was told Seattle was a smart town and I've always heard of its tendencies toward fairness and an equal playing field.

Unfortunately, it's as big a load of crap as Florida being "paradise", with great weather and a laid back life style.

I suppose every major city has some spin to it but you can expect anywhere with a bubble to be "piled" pretty high.

Two young co-workers that work in my department and their significant other's have just decided to start packing it in. One couple is losing their apt. due to it being converted and the other couple feels like it's not worth staying due to the costs they are seeing. I realize this is anecdotal but this is also the same kind of talk I heard 2 years ago in Florida for the same kinds of reasons....

Seattle's different?

Dream on.