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Wednesday, January 17, 2007

Slowing Condo Market? Not Here! Not Here!

The New York Times yesterday ran a story about the struggling condo market in many parts of the country, and with as much attention as it received, you just knew the local news couldn't let it go unanswered. Enter Aubrey Cohen of the Seattle P-I with Seattle bucks trend on slumping condos.

Seattle's market was not to blame for a recent decision to change a planned 34-story downtown building from condominiums to apartments.

Rather, the slumping condo markets in cities such as Washington, D.C., Las Vegas, Miami and Boston affected the national firms that fund such buildings, said John Schwartz, northwest regional director of Keller CMS, which is managing the Terry Avenue Apartments project.

"There was quite a bit of skittishness," he said. "I think the Seattle market clearly has a little different story to tell, but a lot of the big equity players, they take a wider view."

The frenzied condo market in many cities has collapsed since the middle of 2006, dragging down prices and scuttling projects -- or at least forcing them to change, according to a New York Times report Tuesday.
...
Seattle's housing market has fared better than those in other parts of the country in recent months, with continued year-over-year price increases, despite increasing inventory and falling sales, according to the Northwest Multiple Listing Service. The area's condo market, meanwhile, has been stronger than the market for other types of homes.

Seattle real estate professionals and economists agree that the city's job creation, relative lack of speculators and the fact that its boom never rose as high as other places kept its housing market healthy.
...
A Boston real estate consultant cited about 600 condo projects in the city's metropolitan area, with about 49,000 units in various stages of development, according to the Times story. Seattle has fewer than 9,000 condos in the works, according to Williams Marketing Vice President Warren Ballard.

"We don't have anywhere near the volume of construction that some other markets have," Ballard said. "You cannot go anywhere in Seattle and find a finished, brand-new condo to buy."
Really? I guess Mr. Ballard hasn't bothered reading Urbnlivn lately, where Matt has been tracking dozens of condos coming (and sometimes sitting around) on the MLS.

Let's see how this article holds up to the standard "our market is magically stronger than all others" type of article. Prominent mention of continued appreciation: check. Citing job growth as keeping housing strong: check. Un-supported claim of fewer speculator purchases than elsewhere: check. Looks like we've got all the makings of the classic Seattle real estate fluff piece.

Plus, as a bonus, Mr. Cohen threw in the odd comparison of the Boston "metropolitan area" (population 4.4 million) with just "Seattle" (population <600,000). So the Boston metro area has seven times the population and five times as many condo projects as the city of Seattle. Go figure. Also, it is made apparent later in the article that the 9,000 condos figure doesn't include apartment conversions, which numbered 7,000 (this time in the entire Seattle metro area) just last year.

In any case, direct numerical comparisons with other markets seems rather pointless to me. What really matters is whether there are more condos coming online in the next few years than there is demand. Maybe demand for condos in Seattle is just a lot lower than other cities, and 9,000 will push us over the edge. Who knows? It's not like we can count on Aubrey Cohen to actually do some serious investigative reporting on condo demand.

(Aubrey Cohen, Seattle P-I, 01.17.2007)

Update: Over at Seattlest, Michael van Baker compares Cohen's reporting to the Titanic's claim of being "unsinkable."
Meanwhile, condo enthusiast Matt Goyer of Urbnlivn says that "this article is just a little too go-go-go, even for me."

26 comments:

wreckingbull said...

Do any of you recall the mayhem when Ballard's Canal Station starting selling? They had a big tent out front, and I must have seen about 100 people waiting in line.

In the last rew months, I have never seen a single sucker in the Hjarta sales office. Does anyone know how it is doing? Sure seems like a different environment to me. I think the numbers have just not reflected it yet.

Alan said...

and the fact that its boom never rose as high as other places

Really? I thought the Seattle area was in the top five nationally for most expensive housing. Sure, it did not rise as high as the bay area or maybe Bostom so I guess that statement is technically accurate.

biliruben said...

Yes, it's not too late to grab a 2 bedroom apt for the low-low price of $606,500 in the trendy hip oldtown Ballard.

7 units listed, but I'm guessing that's just 1 for each floorplan.

bubblerider said...

The canary in this condo mine will be the investor crowd. Who really knows how many are out there...I have a good Realtor friend with six closings this month in the new 2200 Westlake project. Five of which will be flipped and marketed for sale immediately. When this crowd starts taking the gas pipe on $420k (approx.1 br sales price at 2200) notes and $450 a month dues, might get ugly. Don't see any resales pending in that building, but there are 16 (not including Craigslist) listings right now. With competition from Vulcan's other new projects coming, some taking the views away from the 2200 project, should be interesting this coming season in South Lake Union...

MisterBubble said...

IIRC, the Times article said that the 49,000 figure included condo projects that were permit-approved, but otherwise unbuilt. I wonder if the PI number was as inclusive?

But, yes...good catch on the "metropolitan area" subtlety, Tim!

Slinky said...

Am I the only one who thinks the whole spiel about "media is creating the housing collapse" is completely ironic?

The media spins and spins and spins, and writes fluff pieces like that one, but what they write just doesn't jive with what people are seeing. Price reduced signs. Dealer incentives. Buy my condo, get a car. Signs staying up for months and months and months.

wreckingbull said...

Lets pencil that beauty out, biliruben

20% down: $121,300 to cough up at closing

$2948/month P&I
$521/month HOA
$300/month taxes

$3769/month

I know for a fact that similar Ballard condos are renting at about $1200 - $1300

All joking aside, HOW CAN PEOPLE BE THAT STUPID?

Financeguru?.....Bueller?......Bueller?

Slinky said...

Wreckingbull...

...they got their emotions played, and common sense and intelligence frequently has nothing whatsoever to do with emotion.

The Tim said...

Mr.Bubble,

It's possible that it was just a poor choice of words on Ms. Cohen's part, and the 9,000 number cited was really for the entire metro area (which includes a huge swath of land, from Tacoma all the way up to Everett).

It would still be a ridiculous comparison though, because the Boston area has almost double the population density (947/sqmi vs 543/sqmi). Of course condos are more popular there.

CRichard said...

Come on guys, stop being so negative. 9000 new condos is nothing. Last year just over 5000 condos sold. The new construction does is not even represent two years worth of supply. And even though annual condo sales have been dropping since 2004, it just means that that there is pent-up demand and closings should hit 10,000 this year. So really, it represents less than a 1-year supply.

Also, a 4K a month loss is no big deal when you can sell the condo for 20% more to another flipper after one month. Heck, two flippers can just keep doing this all year until they are multi-millionaires. I think the 2-3x run-up in house prices in CA and AZ shows conclusively that this is an easy way to make money.

matthew said...

Hjarta:

79 Units for sale
7 Units sold

Comrade Chairman Greenspan said...

The irony in this belief that we're somehow going to hold out as the last place with ridiculous prices is that people would simply leave for more affordable places. But then, I guess we must be immune from that too. It might happen to CA or FL, but never here.

MisterBubble said...

Hjärta sales rep: "Ø Kräp!"

greenthum said...

I don't know why I let myself get so upset whenever the local media refuses to report the obvious. If I've learned anything in these last few years it's that expecting MSM to keep me informed is foolish. It's up to me to ferret out the truth. That's why I keep coming back to Seattle Bubble. It gives me hope to know there are others in Seattle that refuse to take life at face value.

bubble_blog_watcher said...

anecdotal observation ~

Hello All, been following this blog for well-over a year. Thank-You to Tim first of all, for this insightful exchange. I appreciate the knowledge and discourse here.

I've been in the 'bubble' camp for a long time. I guess it's still a wait and see proposition, locally. Grew-up on Queen Anne and watched with pain the 'progress' of the market there. Until the last 5-years or so, didn't consider myself ready professionally for the real-estate step. The steepness of the market has pressed me to ever higher aspirations professionally - we'll see which expires first!

Ok, enough about me - my folks (retired and living in CA) have been looking for condo's here for the last several years. This last year a casual search turned into more of an earnest one. During the Holidays, they went back to various locations, including both NOMA and Canal Station.

They were amazed at the lack of progress at both, as they insisted that both (last summer) were spec'd to be starting occupancy this Dec./Jan. - neither appear to be close. Maybe the usual delays, or possibly evidence of deeper systemic issues?

I'm curious as I haven't heard any talk about delays with these large projects, and would think one would, as they are relativly high-profile.

Ok, back to lurking...

Matthew said...

Canal station:

109 units for sale
73 units sold

NOMA:

90 units for sale
66 units sold

source: fatreport

MisterBubble said...

Those numbers go against what their ads say, matthew -- I believe NOMA is advertising that 80% of its units are sold.

I wonder if they're lying?

matthew said...

Possible the fatreport could be off a little... 90 total units with 66 sold is 73.3 percent so its close... The fatreport data is up to 1/07/07 so they may have sold a unit or two since then... Doubtful though as it looks like they have not sold a unit in a while...

The market is HOT!

bubble_blog_watcher said...

..again, according to my parents, they went into each Sales office, received the 'full monte' Sales treatment, and were told specifically about occupancy dates - among other relevant details -

by 'sold' does that mean fully mortgaged signings - or commitments to buy, held by a much smaller initial payment than a normal down-payment?

What happens when a promised date comes and goes, and appears to be dramatically in question?

MisterBubble said...

NOMA has been advertising 80% since before X-mas -- their street litter ("placards") have had red "80% SOLD" inserts for a few months now.

Hear that? That's the sound of truth strrrreeetching (how long 'till it snaps?)

synthetik said...

It seems like only yesterday when we learned about the first condo project in San Diego to go belly up...

Yesterday, as in February 2006.

Great post Tim.

Thomas said...

I was wondering about portland. What is the feeling about the Pearl?

Matthew said...

Thomas,

I don't follow the Portland market, sorry.

Jon said...

I love this blog... it gives me such great perspective.

The writing is on the wall. There will always be people who believe one thing, and people that believe something else.

Let's talk about new construction, specifically condominiums. Historically speaking, anytime you have 30% absorbtion rates (meaning, of the 500 condominiums that come on, 150 sell), you are in a seller's market (meaning homes are selling at a quick pace and it's profitable for a seller to sell). Anytime it is below this said 30% mark, you have a buyer's market. Take a look at the absorbtion rate on www.alanpope.com and compare the aborbtion rates. We are currently at a 24.9% abosorbtion rate, below the 30% tall tell sign of buyer/seller market. But think about this... How many builders put ALL of their inventory on the market? Most of these homes are sold pre-sale or they just list 5 of their worst products to lure people to the site where they upsell them to a better property. Now, these statistics are pulled from the MLS which is a small representation of the overall product.

Needless to say, I think it's safe to assume that there are a lot of buyers out there who continue to thirst for the newest, greatest product and people will always be looking to purchase a home. After all, it's the biggest tax shelter/savings plan one can own.

Other factors that make Seattle different are these:

1. Strong Job Growth
2. Good city to do business in
3. Companies continue to grow
4. Lack of inventory close to the city, coupled with horrible traffic from locations outside the city
5. Steady migration into Seattle (net gains in population and tempered predictions of further population growth)
6. Restrictive Zoning (take a look at www.itsapriority.com and how they want to demolish the GMA)
7. One of the most affordable port cities on the West Coast.
8. We are taking lead from Vancouver, which was reported in the NY Times yesterday due to it's resounding success of urban living.
9. This city is a cool and beautiful place to live.
10. Lack of 'bubble' type years of appreciation (no 30-70% appreciation over the span of a year)
11. Builders will not allow more than 30% of investors to purchase their product (even though standards have been lifted to 50% homeowner occupancy)


So, once again, you renter folks keep up the good work... we get to raise rents on you shortly and blame it on the cost of doing business.

MisterBubble said...

"You renter folks keep up the good work... we get to raise rents on you shortly and blame it on the cost of doing business."

Indeed. And after another 20 years of rent increases, you might be able to cover the cost of your bloated mortgage.

Good luck!

matthew said...

Jon aka TROLL,

Use the search function on this blog, and you will see that all your points have already been covered and discussed ad naueseum.

I know that post probably made you feel better, but next time why don't you say something that hasn't been said by every troll like yourself before????

Snore.... zzzzzz........

And you are right! Seattle is still more affordable than New York City, California, Honolulu, DC and uh... uh... oh wait, no where else...

DOH! Wow what a cheap place to live! They aren't making any more land, BUY NOW OR BE FOREVER PRICED OUT!!!!