Buyers Can’t Afford Glut of High Priced Condos, Stalled Development

[powayseller]

Glut, high prices put condo projects on hold across the country

“…..From coast to coast, developers are nixing or delaying condominium projects as home sales decelerate, construction costs soar and lenders start to balk at financing units that might not sell. What’s making it worse is the glut of high-priced condos and too few people who can afford them……

Jack McCabe, chief executive of McCabe Research and Consulting in Deerfield Beach, Fla., said desperate developers with finished condos are offering incentives in South Florida.

McCabe considers the condo market, especially the luxury end, at risk of a crash. Over the next few years, he sees prices falling by double-digit percentages.

The luxury condo surplus is to blame. McCabe said about 25,000 condos are under construction in Miami-Dade County, with two-thirds costing $700,000 or higher; another 25,000 units have gotten building permits and 50,000 have been announced for future construction.

McCabe said the median household income in the county qualifies local buyers for a $225,000 home, so the luxury units are targeted mainly toward affluent, out-of-state buyers.

Meanwhile, speculators have driven up prices by flipping units, he said. But they’re now leaving the market – driving down demand – and putting up for sale properties they own, adding to the glut.

Aside from Miami, he said areas at risk include Boston, San Diego, Las Vegas, Seattle, Chicago, Orlando, Fla., Washington and Manhattan.

A big part of the problem is that many condo projects are priced high, in part because developers have to recoup the high prices they paid for land. But most buyers can’t afford it.” – FortWayne Journal

I posted this story, because I like McCabe’s honest style. As a consultant, his interest is in representing the state of the market. Unlike San Diego Assessor Smith, who encourages home buying to satisfy his real estate donors and line the pockets of his realtor wife with clients, and perhaps make sure his department’s revenues don’t come crashing down too soon, McCabe is the beacon of wisdom.

If you had to hire one of these guys to advise you on the economy, which one would you pick?

[VADCMD]

Another story of Condo. Condo market will be the worst in the housing crash.
http://www.washingtonpost.com/wp-dyn/content/article/2006/03/24/AR2006032400802.html

Cave points to another rising edifice. “You can see the signs — luxury condos for $800,000. What could be so luxurious in a condo?”

He nods toward another pricey building, mockingly noting that it overlooks a bus parking lot. “That’s no view,” he says.

The real estate market has become an obsession for a lot of people in this region, and Cave is one of them.

With 11 years of work experience as a graphic designer, secure in his job, climbing in his field, Cave is the kind of young man who normally would have already moved into the ranks of smug homeownership. He has spent the past eight years saving for a down payment. He is ready for the nesting phase of life, would like to buy and has identified the neighborhood he wants, but now it all just seems too uncertain, too expensive. And so he waits.

Instead, he spends at least part of every day thinking about real estate — what’s for sale, how much it costs, where it is located, what it looks like. He wonders how people can afford it, whether home prices can continue to rise and what would happen if they were to fall. He worries most about what would happen to him if values were to fall after he finally bought, possibly draining years of his savings.

A University of Maryland graduate who grew up in Prince George’s County, Cave recalls a time when he was about 20, during the real estate slump of the early 1990s, when houses in his family’s Bowie neighborhood sat unsold for months, finally changing hands for much less than the owners had hoped.

Cave and other would-be first-time buyers are part of the reason the Washington area market has slowed down. Instead of leaping into the market as others did in the past few years, more prospective purchasers are taking their time, agonizing over the decision and, in some cases, deciding to take a wait-and-see approach before committing.

“There are probably the same number of buyers as before, but they are not in any rush to buy,” said Rick Bosl, a real estate agent who specializes in the Arlington condo market and works with Keller Williams Realty. And there are just so many more homes for sale, he said.

The multiple listing service lists 462 condos available for sale in Arlington, he said. There are several hundred more units available in new buildings and new condo conversions that aren’t listed on that service.

“In some markets, we’ve seen prices go down, and nobody wants to buy in a falling market,” he said. “On the other hand, there can be more opportunities, because if your house has been available for sale on the market for a while, you might be willing to sell for anything that comes along.” He added that many condos have appreciated so much that the owners could decide to accept a $150,000 profit rather than $200,000, if they wanted to sell quickly.
Sitting at the computer in the video production firm where he works, Cave calculates how much he could afford to pay, at various interest rates and with different amounts of down payment. Take, for example, the Arlington condo he rents for $1,400 a month. Units similar to his have sold for $480,000. Recently the investor who is his landlord offered to sell him the place for $440,000. Cave could buy it, but he turned down the offer. He figured out it would cost him more than $3,000 a month to own the place, assuming a 20 percent down payment, taxes, insurance and the condo fee. He can’t see spending twice as much to own as he does renting. That would leave him constantly strapped for cash and stripped of his savings, he said.

“It seems like the moorings are coming undone from reality,” he said. “It’s like the Internet stock craze — you’d sit there and say something doesn’t compute here. . . . What’s happened in the last three years? My salary hasn’t gone up anything like that.”

He reflects on the old rule of thumb that people shouldn’t pay more than one-third of their income for housing. When did that change? Some of his friends, he said, say they are paying 60 percent of their income for housing, doing it with interest-only loans, facing the prospect of balloon payments that will come due.

He worries that too many investors bought condos in recent years and that their speculative purchases do not reflect real demand.

“They can flip it and leave someone else holding the bag,” Cave said. “That’s the world we live in now. They don’t care if you’re hurt or if you can’t pay your mortgage anymore.”

So now Cave watches carefully, walking his target market, which runs from Clarendon to Ballston in Arlington, checking out construction sites to see what is planned, and visiting the model homes when they become available. He does a lot of his searching on the Internet, comparing square footage, floor plans and locations.

He clicks into one Web site he frequently visits, http://www.arlingtoncondo.com , which shows both existing for-sale listings and new complexes, to see what is available. He quickly notes that there are now 47 new complexes being advertised for sale, which strikes him as a lot. He had been noticing that prices seemed to be dropping, and now when he visits the site, he notices that the listed prices are no longer available.

“It’s like they’re hiding the prices now,” he said. “They’ve all taken the prices off the list.”

Still, he said, his friends keep urging him to buy. Some who bought homes several years ago are hundreds of thousands of dollars richer than they were as renters. They say the Washington area market is different than that in other parts of the country because there is so much job growth here and because so many jobs pay well. They tell him the population is growing faster than the number of houses being built, and that prices always reflect supply and demand. They talk about the tax advantages they are enjoying.

And, he said, they tell him, “You’re throwing your money away.”

[Author]

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