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Tuesday, February 06, 2007

Condo Shoppers Lie Low

This article appeared on the front page of the Puget Sound Business Journal early this month. While typically not read by the general public, "Biz Journals" are widely circulated throughout the business community. Local businesses use the publication to keep tabs on their customers and competitors and to stay abreast of local business news.

I've posted the entire article with permission as it's currently only available to subscribers of the Journal. Enjoy!

Puget Sound Business Journal
February 2, 2007
by Justin Matlick

Walk into the "Trio" condominium project's Belltown showroom, and it looks like many other glitzy condominium projects rising in downtown Seattle. Many of Trio's units, when they're completed this fall, will feature bamboo floors and faux-granite countertops. Tenants will share a roof deck just a block from the new Olympic Sculpture Park.

But there's one key difference between Trio and some other recent projects: It isn't selling.

With a median price of $405,000, the project opened for presales in December 2005 and, as of Jan. 7, had sold just 28 of its 116 units, according to the Fat Report, a monthly newsletter that chronicles local condo sales.

Trio is among a growing number of struggling condo projects in Seattle. A downtown Seattle high-rise project at Fifth Avenue and Madison Street has sold about 52 of its 126 unfinished condominiums since September 2006 [sic]. Lumen, a 94-unit project in Seattle's Lower Queen Anne neighborhood, started selling in June 2005, and roughly a third of its units are still up for grabs. In Ballard, a project dubbed Hjarta, which started presales in October, had sold seven of 79 units as of Jan. 7, according to the Fat Report.

The stagnant sales could pick up once the projects are completed, and don't mean Seattle has been dragged into the condo tailspin now affecting markets in Las Vegas, Boston and other cities -- some recent local projects have sold out within days. Still, many local developers and real estate watchers agree that Seattle's condominium market is decelerating for the first time in years.

The reason: With thousands of local condos slated to go up in the next few years, buyers believe the recent period of rapid price appreciation is disappearing, and it's taking away the buy-now urgency that fueled the local boom with it.

"Buyers have a lot more to choose from and are playing a bit of a waiting game," said Mark Schuster, president and chief executive officer of the Schuster Group Inc., a Seattle-based real estate development company.

Nationwide, the condominium outlook is bleak in cities such as Washington, D.C., where a rush to build left the market oversaturated. In the fourth quarter of last year, developers in the Washington metro area switched roughly 5,900 projected condos into rental apartments, while plans for another 2,500 new condominiums were shelved, according to Delta Associates, a research firm based in Alexandria, Va.

While the Puget Sound region's housing market is slowing -- in King, Pierce and Snohomish counties, the Northwest Multiple Listing Service has reported falling home sales and rising inventories since last summer -- none of the real estate professionals contacted for this story were aware of any local projects being canceled or postponed, and most economists agree that the local market is well-insulated against a dramatic decline.

According to Dick Conway, co-publisher of the Puget Sound Economic Forecaster newsletter and Web site, the ongoing Boeing boom, a Microsoft hiring spree and strong demand for the region's exports from Asia set the stage for an ongoing population inmigration that should keep housing demand steady.

"We have very strong fundamental demand for housing because of population growth," Conway said.

The critical question facing local condo buyers: whether supply will outstrip that demand. While it's nearly impossible to predict how many condos are too many, it's apparent that the region's developers remain in the throes of a condo-building spree.

Developers in King, Pierce and Snohomish counties filed permits to build 8,300 units of multifamily housing, including apartments, condominiums and townhomes, in 2005, according to Conway. That number rose to 11,200 last year.

Meanwhile, developers are converting apartments into condos at a rapid clip. Roughly 7,000 apartments were transformed into condominiums in 2006, or were scheduled to hit the market soon, according to Dupre + Scott Apartment Advisors in Seattle.

The bevy of new projects "has probably put a little rain on the sales parade," said Lin Shih, a Seattle real estate agent who specializes in condos at Coldwell Banker Bain. "Buyers think that, with all these new developments coming up, they can be picky."

Another factor: a widespread belief that the days of rapid price gains are over. "When the market was hot, people knew they were buying today for ready-made appreciation," said Brett Frosaker, owner of Columbia Real Estate in Seattle and publisher of the Fat Report. "Now they're starting to wonder if today's condos are listing at tomorrow's prices."

According to Frosaker, a project's sales typically accelerate once it is completed, in part because buyers feel more comfortable seeing the actual units instead of showroom mock-ups.

Nonetheless, some projects have sold rapidly in the presale phase, especially lower-priced developments targeted at first-time buyers. The 251-unit Moda project in Belltown, for instance, came on the market for presales last summer and sold out within days, according to Frosaker. Many of Moda's condos were small units priced under $300,000.

Looking ahead, Frosaker believes this summer could be a ripe time for condo buyers to get good deals, especially as the bigger projects get closer to completion and their developers feel a greater sense of urgency to fill them up.

"With all these projects fighting tooth and nail," Frosaker said, "summer might turn into a great buying opportunity." Schuster believes demand will remain strong enough to support current price levels. "I don't see price drops being part of the equation even if there were a significant slowdown," he said.
What do you think? Pretty objective, no? Why aren't we getting this "fair and balanced" type of reporting from most of our friends over at the Times or PI?

What makes this article unbiased in regards to residential real estate is the fact that 100% of its advertising is B2B related.

From my own personal experience, the B2B world (especially in the business networking community) have little use for the B2C crowd (i.e. real estate clerks and mortgage brokers). Since B2C types are usually dealing exclusively with consumers, it can be difficult for them to provide B2B referrals, and, worse yet, they often attempt to solicit business from their fellow networking partners.

Newspapers such as the Seattle PI and Times are co-conspirators to the REIC as they rely heavily on residential real estate advertising for their revenues, often leading them to distort the truth.

(Justin Matlick, Puget Sound Business Journal, 02-02-2007)

41 comments:

Rolandovich said...

Certainly more "fair and balanced" than the PI and Times, but it still seemed to me to attempt to calm the jitters of would be developers.

I wonder if there is any coincidence between this article and the Olive-8 contract dispute....

Jon said...

Hold On! I have to put my waders on...

The Business Journal is the most fair and equitable reporting newspaper in the industry? *Sound the Sirens*

If you haven't noticed, the Business Journal is comprised of about 40% Real Estate, including ads from the industry. It's ridiculous you make such false accusations.

It's amazing to me that you continue to report about how the bubble is here, how homes are inflated, how ridiculous our market is, and yet, we are still the least expensive West Coast Port City.

Furthermore, it goes to reason that with the current activity in the marketplace, the plethora of multiple offers, the plethora of buyers and the plethora of projects (aside from a few horrible conversions/new construction buildings) continuing to sell out, we are not in a bubble.

Have we stabilized? Maybe a bit. The houses that are horrible and/or overpriced are sitting. The homes in horrible neighborhoods aren't garnering the appreciation of those close to the city with the 'location, location, location' label.

I love the superphilosophy that we are in a bubble and I love those that buy into it. The more people buy into the idea that this is a bubble, the better my ROI will be on my next investment property.


The Real Estate industry continues to try to protect your rights, protect you against the limited service broker's you insist on using, and help you make a sound financial decision. Unfortunately, I can't debate those topics here because the superphilosophy of "buy now or be priced out forever" is a theme that is reverberated through the cloth of those posting.

DebtFree said...

Don't you mean the theme of "Sell now or be priced in forever!"

Mayber Jon is right since the plethora of multiple offers and building projects obviously means we are not in a bubble?

I would personaly like to thank the real estate industry from protecting me from the open market by their current monopoly.

But seriously, we all know this bubble has been a charade. Things are starting to fall apart. As the water drains out of the pool, we will see who is wearing trunks, or waders if you like.

biliruben said...

Jon - I don't have a clue what you are talking about. Unless you are using sarcasm in every other sentence, you seem to contradict yourself repeatedly.

Anyway, you are real estate "investor", it appears.

Maybe you can make yourself useful, and let me know how you buy properties in this market that can cash flow without the unprecended appreciation we have seen over the last 5 years.

Be specific, yet concise. It would be an interesting lesson for all, I'm sure. Most especially, perhaps, yourself.

deeplennon said...

"we are still the least expensive West Coast Port City."

Sincerly, the Port of Portland

Comrade Chairman Greenspan said...

"Faux granite countertops?" LOL! What's the matter, builders running out of money?

"The Real Estate industry continues to try to protect your rights, protect you against the limited service broker's you insist on using, and help you make a sound financial decision."

Yes, as a consumer I should only be educated by the people who are selling to me. Good God, son.

synthetik said...

>If you haven't noticed, the Business Journal is comprised of about 40% Real Estate, including ads from the industry. It's ridiculous you make such false accusations.

I could be wrong, but when I used to subscribe to the Business Journal, virtually all the ads were directed to B2B.

Of course there is plenty of commercial real estate advertising - and I never mentioned the paper itself wasn't biased. Of course it's biased! Just not in terms of Residential Real Estate.

T,V & Mr.B said...

Jon,
"the Business Journal is comprised of about 40% Real Estate" Really????? I am sure you can count. 4 adds in the PSBJ I picked randomly out of my stack in my office. 1 of those 4 was commericial RE. If you Include the Clasifieds RE section, of 15 Adds It still doesn't even come close to 40%.

Regarding your statement"I love the superphilosophy that we are in a bubble and I love those that buy into it. The more people buy into the idea that this is a bubble, the better my ROI will be on my next investment property." Good luck on that. Yes there will be opportunity to buy when the prices drop for those of you who have the Cashola to aquire properties at a reasonable level. and in a few years, maybe you will have some nice equity. I don't know how old you are and if you ahve ever been through a bubble, for I have seen it take quite a long time for prices to reach previous levels. Look at history, It took 40 years for real prices to get back to levels from the 30's.

regarding your statement "The Real Estate industry continues to try to protect your rights, protect you against the limited service broker's you insist on using, and help you make a sound financial decision"

Now that is just a bunch of CROCK and we are the ones who need waders with sputum like that being flung. That one actually makes me laugh a bit. Thanks for that.

T,V & Mr.B said...

"we are still the least expensive port city on the west coast"

Compare some prices right now between San Diego and Seattle. You will see that house for house, not any more.

redmondjp said...

Last time I checked, Tacoma was a port city as well . . .

Matthew said...

Jon = Troll

he is also on urbnlivin

TROLL

Grivetti said...

Trio: 28/116 units sold
5th&Madison: 52/126 units sold
Lumen: 62/94 units sold
Hjarta: 7/79 units sold

7000 apts to condos in 2006

... and with this tidbit from Washington D.C.

In the fourth quarter of last year, developers...switched roughly 5,900 projected condos into rental apartments

condo prices to go down... rents to moderate.

Its pretty obvious to see where this is all going. I think, right here, this destroys the equity rich "empty nester" myth the REIC's been pumping over the last year. That and the 'young professionals' aren't able to swing their 450K mortgages... or are at least smart enough to no better.

Especially when places like 'Moda' sell out. Prices are too high to support condo prices, they have to fall in order for inventory to be reduced....

sorry financeguru...

Herb Wright said...

"Newspapers such as the Seattle PI and Times are co-conspirators to the REIC as they rely heavily on residential real estate advertising for their revenues, often leading them to distort the truth."

I'm a local agent and an investor and I have found exactly the opposite to be true. PI and Times seem more focused simply on getting eyes on the page than in being fair and balanced. But I think the direction of their slant is not PRO-real estate but simply ANY spectacular, eye-catching story.

Last year they printed several articles about BUBBLE bursting, prices crashing, etc. as headline articles, leading locals to believe that bursting and crashing was occurring locally. Last year, however, there was no bursting and crashing locally, and it wasn't until an issue in January 2007 when the papers clarified that fact with a headline article.

Grivetti said...

Last year they printed several articles about BUBBLE bursting, prices crashing, etc. as headline articles, leading locals to believe that bursting and crashing was occurring locally.

Well, maybe it was just me, but I recall seeing tons of "...but not here" bylines everytime I noticed a comment regarding the downward trend of national real-estate.

There was "chatter" indeed, but you'd have to be a pretty casual oberver to get that impression.

wreckingbull said...

The houses that are horrible and/or overpriced are sitting.

Yep. Look no further than Hjarta, Trio, or Financeguru's love-nest.


The Real Estate industry continues to try to protect your rights, protect you against the limited service broker's you insist on using, and help you make a sound financial decision


Dude, are you listening to yourself? Even the few honorable Realtors I know would never say something like that.

deepcgi said...

Jon:

In your universe where real estate is a perpetually good investment, who is going to be buying 3 bedroom 2 bath homes for 1,000,000 adjusted for inflation? Am I going to split one with 3 other families? What is going to happen to Kansas, Missouri and the like? No humans there? all converted to ethanol-corn farming while everyone clusters in giant high rises like a scene from the Fifth Element?

Give the economics a little thought and tell me which concept is more absurd: a housing/equity bubble, or a new urban housing paradigm.

MisterBubble said...

When you're talking about condo supply, don't forget to mention the condos that are going to go up across the street from Hjarta (I call it the "Condo Super Buffet"), Canal Station Phase II (electric boogaloo), and SoMa, which has been "80% SOLD!!" for about three months now...

MisterBubble said...

Errr...NoMa, rather. Sorry. Got my "world-class" cities screwed up there for a moment....

Joe Consumer said...

80% sold rocks for a condo. Profit is made in the last 30%, so the developer has his money back plus some. No rush to move inventory.

Ben said...

San Francisco is certainly a world-class city, Misterbubble, just not sure why you are so darn against Seattle being viewed as such? What is wrong with being proud of where one lives, and valuing the beautiful, WORLD-CLASS public amenities we have like the Sculpture Park and the Library? Cynicism can be funny, but it is a sad thing when people (not you necessarily but some folks), take on such a negative view of where they live. We all have the power to move. And to continue our convo from this weekend's thread, I'm sure as hell not going to apologize for trying to shout down that joker who called our state employees "parasites" and used equally inflammatory language on some cool aspects of Seattle. Tit for tat. Sorry if that is not "friendly" enough for you.

Ben said...
This comment has been removed by the author.
Ben said...

Joe Consumer - you are right, but if those are "pre-sales", developer needs to hope the purchase agreements are binding and that buyers don't walk from their deposits. What I find interesting about the condo market is the interplay between construction costs, apt rents and condo prices. The cost-to-own-vs-rent ratio is definitely out of whack by historical standards, so condo prices need to come down some, and/or apt rents need to go up. Theoretically, over the long-term, construction costs effectively put a floor under both (because development eventually contracts if a period of over-supply occurs, and new inventory starts selling BELOW replacement cost)... of course, construction costs could come down... it will be interesting to see what a future equilibrium might look like.

MisterBubble said...

"San Francisco is certainly a world-class city, Misterbubble, just not sure why you are so darn against Seattle being viewed as such?"

Ya know what's funny about "world-class" cities like San Francisco? They don't tend to refer to themselves as "world-class".

Just an observation.

MisterBubble said...

Also, ben:

Sorry if you took offense at my comment in the previous thread. It's just that the hairs on my back tend to stand up when someone is told to leave a place in response to criticism.

Seattle has enough groupthink and consensus. Disagreement and diversity are part of what makes a city "world class," too.

synthetik said...

Herb said: I'm a local agent and an investor...

of course you're going to see things differently. This is religion to you.

"Last year they printed several articles about BUBBLE bursting, prices crashing, etc. as headline articles, leading locals to believe that bursting and crashing was occurring locally."

I could be wrong, but I have to call BS on that. I've been following the local media here for right about a year now. The word "bubble" wasn't on anyone's radar, least of all the MSM.

Tim?

Ben said...

Seattle is very diverse, it is one of many things I love about the city. There's hardly consensus on the viaduct, BTW! One of the most fascinating things about this blog (and something that often irks me) is that several posters go beyond discussing the housing situation and start making derogatory comments about Seattle, the weather sucks, the people are unfriendly, all dot-comers are greedy... like a weird form of self-hate... true, I may have been a little harsh in my comments to the guy, but seriously, why is it insulting to suggest that someone should leave a place they hate, rather than complain loudly about govt parasites, taxes and public amenities. If the guy wants to go be Randy Weaver, more power to him, I'll leave him alone.

greenthum said...

ben:

Why is it that when people like yourself encounter an opposing point of view, your tolerance and love of diversity goes right out the window? "...They should just leave". Wow! That's so unSeattle of you and a bit childish, don't you think?

I love this town! The natural beauty here is unsurpassed. It's the man made crap that's starting to get to me. But I'm not planning on going anywhere so I guess I'll just have to deal with it. Which is what I suggest you do, Ben, deal with it!

Ben said...

I'm not going anywhere either, Greenthum. Glad you are planning on staying and continuing to pay taxes.

T,V & Mr.B said...

I think some of the criticism you see about Seattle is not so much criticism, but a counter argument to those who state that housing prices/demand stem from the desirability of living here. Those that argue that point are searching for anything to keep the increases going. and those criticism of Seattle are most of the time a counter point.

Obviously, a desirability of a city is completely subjective. When I lived in San Diego, I saw several people move up here only to move back to San Diego after 1 winter. People talk about San Diego like it was Eden. I couldn't stand it there, I love it here. But snow capped mountains, lush trees, fog floating through the forests is what flips my boat. Not 80 degree temps and ratty palm trees with a putrid brown backdrop. That's just me. I am all for as many people leaving here as possible.....not that that will do anything about the housing prices, but it will make my comute a bit smoother.

greenthum said...

ben:

Yeah, I'm stayin' put. As far as taxes go, looks like I'll be doubling my efforts to get the next Tim Eyman tax cutting initiative passed.

MisterBubble said...

"I think some of the criticism you see about Seattle is not so much criticism, but a counter argument to those who state that housing prices/demand stem from the desirability of living here."

Oh dear god, yes!

It's no secret that I don't like Seattle very much, but at worst, I find the place mildly irritating and dreary (bleh).

Nevertheless, I've never lived anywhere where the locals are so damned insistent that you have to looooove the city, or else. It's like a cult! And if you dare say anything negative (or even slightly challenging), you get the inevitable, love-in response: "well, if you don't like it, you can just leave, can't you?" (as if this were somehow not a desirable option for the true Seattle hater...)

In any case, yeah, sometimes I'm guilty of overplaying my I-hate-Seattle card. But it's usually in response to the goons who insist that it's just the hap-hap-happiest place on earth, where the sun always shines up your butt, the streets are paved with gumdrops and jellybeans, and 20% annual home appreciation is just an inevitable consequence of the polar-fleecy greatness of the place.

But I digress.

Seattle's OK, if you happen to like rain, and you're comfortable with 9 months of cold, dark, dreary weather. It's even kind of charming, once you're used to the gloom, the lack of racial, cultural, and ethnic diversity, and the frustrating, torpid mentality of the place. But when folks say simple-minded things like "it's the cheapest west-coast city!" (as if this is supposed to suddenly make me want to run out and take on $600,000 in debt to purchase a "luxury" townhome in the central district), it takes all of my self-control to keep from telling them how I really feel about the city.

And that's all I have to say about that.

</rant>

T,V & Mr.B said...

Hey, here is something funny. In that same PSBJ paper, on the next page it talks about boat sales doing quite well. The opening line is "Gas prices may be high, home prices ON THE VERGE OF TUMBLING,but that's not sinking locals' love of boats."
So there is the media admission that prices are gonna colapse.

tralala said...

Ben,

I love Seattle, but I have no idea what you mean by Seattle being diverse. It's not economically that diverse and it's not racially that diverse. It's not culturally diverse.

Seattle feels more and more homogenous every year. The funky neighborhoods have turned into bland condo-ville with the same stores. The arts community (and I mean the smaller artists, not the larger ones like the opera or ballet) seems a lot smaller than when I first arrived.

Sure, it's more diverse than let's say....Iowa, but if you compare Seattle to..let's say San Francisco--we're really not diverse at all.

softwarengineer said...

I STOPPED READING LOCAL PAPERS AND WATCHING THE LOCAL NEWS YEARS AGO

A handful of corporations CONTROL all the local Seattle news. I watch local TV news for weather and school closure reports, that's all its basically good for.

Ditto on the news papers, every once in a while a good article slips by, like the take about a year ago on the chronic highly toxic arsenic levels near and around Puget Sound caused by Chinese diesel ships. Hey, go buy that waterfront home....cough!!!

flotown said...

Damn. I was looking for site with good, unbiased analysis of real estate fundamentals without the spin of big publications. Instead I find a bunch of Lesser Seattlites whose ability to judge whether there has been a paradigm shift in seattle is blinded by collective anger towards new development and new arrivals.

The residential market is probably slightly overpriced in the short-term due to questionable lending practices, but many here are discounting factors that will continue to drive up prices over the long term

1)Construction costs escalation puts floor on prices for new product
2) Few alternatives.
- No new freeways, no commuter lines - need to live near work
-Still cheaper than other west coast cities with similar drivers of job growth, tech, finance, healthcare
-Growh limits make exurban development expensive
3) Employers aren't moving to smaller regions, in fact they are consolidating in larger ones, especially as corporate consolidation continues. Puget Sound is the only game in the state and represents the largest population concentration for a 1000 miles in any direction.

Until I see mass relocations of companies to Spokane or Ellensburg, I can't see prices plunging, rather only a short-term hiccup in prices (2-3 years of flat or slightly negative appreciation region-wide)

Currently, fundamentals are out of whack, but I'll bet any of you rental prices increase to meet valuations to greater degree than valuations fall to meet current rents.

MisterBubble said...

"Instead I find a bunch of Lesser Seattlites...blinded by collective anger towards new development and new arrivals."

Uh. Yeah. I've lived here for seven years. But nice ad hominem. It makes your argument quite strong.

"Construction costs escalation puts floor on prices for new product."

Construction costs are currently falling, not rising.

"No new freeways, no commuter lines - need to live near work."

Just like every other equal-sized city in the United States. Been out of Seattle recently? Traffic is bad everywhere.

"Still cheaper than other west coast cities with similar drivers of job growth, tech, finance, healthcare"

Gee. Adding the disclaimer makes this argument so much less simple-minded than the first seven hundred times it was debunked.

(hint: it's the weather, stupid!)

"Growh limits make exurban development expensive"

Uhm....you might want to read the archives for a couple of posts, mmkay?

"Employers aren't moving to smaller regions, in fact they are consolidating in larger ones"

Prove that these magical corporations are paying the locals enough money to afford condominiums priced at $500,000, and we'll listen to you.

"Puget Sound is the only game in the state and represents the largest population concentration for a 1000 miles in any direction."

A) "Puget Sound" is huge.
B) Prices are already high enough that I wouldn't mind moving 1000 miles in any direction from here.

"I'll bet any of you rental prices increase to meet valuations to greater degree than valuations fall to meet current rents."

Hey, perhaps. But since local rents are currently around half of the equivalent-property PITI, I'm betting that you're wrong.

DebtFree said...

"Damn. I was looking for site with good, unbiased analysis of real estate fundamentals without the spin of big publications."

So you came to the Seattle Bubble Blog looking for unbiased analysis? Helloooooo.

I think you might wan't to go to www.realtor.com for a more "unbiased" account TROLL.

Matthew said...

gotta love the Trolls that stop buy occasionally and drop the same old lines over and over again. and then disappear....

T,V & Mr.B said...

I don't see a great bias here. Except against iiiiidiiiottts. and trolls.

flotown said...

Troll? I post on the PI's real estate blog and call the Realtors BS occasionally. I think we will see stagnation and potentially some drops in prices in the next few years.

See an option you don't like and yell "troll." nice work.

Mr. Bubble, please don't tell me construction prices aren't rising, when I've just walked out a meeting with contractors for a bid on several multi-family developments.

Back to the points at hand
1) Seattle's geography (surrounded by deep water on both sides is unique and its lack of rail mass transit for a region of its side is also unique. Getting from suburbs to DC and suburbs to Boston (places I used to live) is a lot easier than from suburbs to Seattle b/c there are no alternates to I-5/I-90 save a few commuter trains n/s

2) "But since local rents are currently around half of the equivalent-property PITI, I'm betting that you're wrong"

Depends upon degree to what external demand not based on local job growth is responsible for prices. PITI is irrelevant in wealthy neighborhoods, which more and more places are becoming. IF I can afford a $1 million house, I don't care what its worth on an income basis. If I have 3 kids and dog, I might rationalize that rent would be cheaper, but people have a bias - pride - in ownership that upsets the PITI balance. Multi-family should more closely resemble the ratio, but again, I expect rents to climb much higher (Seattle is VERY affordable as a rental market relative to anywhere in California, even in realtion to wages).

Matthew said...

California also has as much sunshine as we have rainy days.

Why the constant comparisons of Seattle to California?? The only thing we have in common to California is the fact we are both on the west coast.