The P-I’s July real estate report is amusing enough that I thought it deserved its own post. Apparently they got the “focus on condos” memo a week late. Plus, Kathy Mulady didn’t have the same cleanup work to do as Ms. Rhodes. Anyway, here’s a newsflash for you: condos are slightly cheaper than single family homes. You too can be a big-name real estate reporter. Just start with that amazing truth, then pump it, hype it, and transform it into yet another “real estate in Seattle is teh rox0rs” article! Ready… go!
Bob Hyde and his wife searched for a house they could afford in Seattle off and on for two years before they decided that maybe a condominium was the best way to break into the housing market in Seattle.“Ideally, we wanted a single-family house, but we are priced out of a house in town,” said Hyde, 31. “Finally we decided that this was the time to buy if we were going to. Prices are escalating out of control, and we thought we’d better get into someplace and start building equity.”
That place is a 600- square-foot condominium on Capitol Hill in a fully renovated 1910 building. With one bedroom and one bath, Hyde said he already knows it will be too small once they have children. By then, he said, he hopes they will have built up enough equity to buy a house.
Many first-time home buyers in Seattle and King County are looking at condominiums as a way of getting their foot in the door of the real estate market, and plan to trade up to a house later. With condo prices increasing faster than single-family homes in King County, it could be a good plan.
…
Hyde said they paid $271,000 for their condo when they bought it in April.He said they couldn’t envision living in any of the houses they saw for under $300,000.
“We looked at a lot of dumps for around that price,” he said.
In addition to their mortgage, the Hydes pay a $300 monthly association fee, and could face extra assessments if major repairs are suddenly required for the building.
Hyde said he’s optimistic that it’s a good investment that will help them build the equity they need to buy a house in a few years.
…
Developers are responding to the needs of first-time buyers, with more moderately priced condos located closer to jobs.“We recognize that there are a lot of higher-end high-rises and saw that the market might become saturated,” said Doug Daley, president and chief executive officer of Harbor Properties.
…
If condo buyers live close to work, they might be able to get by without a car and put that money toward their housing, said Daley.
Wow. After reading that, who wouldn’t do whatever it takes to hitch a ride on the Great Seattle Equity Railroad? Drop the car, take out crazy financing, live in half the space for twice the price… just get in, no matter what.
(Kathy Mulady, Seattle P-I, 08.08.2006)
Sadly this dude hitched his wagon to a submarine, not the railroad equity express.
I have said this over and over and over again, but I will say it once again. When the math makes NO sense, and when you have to do CRAZY things just in order to purchase something – you are in a bubble. It is speculative and you are playing the game of the Greater Fool!
There really is no way around this common sense, this poor fool will find out. Economics can sometimes take a holiday as it has done with real estate recently, but all eventually comes back to reality. That move back to reality will be painful for those hopping on the fools rung of the ladder.
Does the industry have a definition of a bad market? Or would it be considerd a market in ‘transition,’ or a market in ‘flux?’
How about a ‘breather,’ or ‘pause for reflection,’ or ‘taking a time out.’ How about ‘a market on Sabbatical?’ Or how about ‘re charging it’s batteries?
What will the term be called?
;)
The interesting point is that no one mentioned in the article was buying the condo because that is what they wanted and expected to stay there long term. They were all using it as an “investment” to build “equity” and move on.
If the market continues to rise they will still not be able to afford the mortgage on what they really want, which probably is in the $400,000 to $500,000 range now. Of course if the market flattens, they are paying $2400 in PITI and association dues for a 500 sq ft apartment which would rent for around $1000 and losing $1400/mo on top of a drop in equity.
If they can’t afford what they want now, buying an overpriced condo is not going to get them there. Even if the market on the whole goes up 50%, they will have $110K from the condo to put down on a now $600K house. I don’t think they would be able to swing a $465k mortgage if they can’t do it now.
They will be very sad raising children in their 500 sq ft apartment when they are trapped upside down on equity.
prices are escalating out of control, and we thought we’d better get into someplace and start building equity.
Err… yeah, and Saddam was a threat to world peace with his WMD. IS it me or is the surrealty of credit-bubble-mania taken on some strange Orwellian newspeak? Every article is just these soundbyte mantra’s that sound eerily like NAR talking points. For allegedly smart people, we Seattle-ites sure sound like mindless automotons when it comes to Real Estate.
Hyde said he’s optimistic that it’s a good investment
Dude! A good investment is CD’s etcetera (see the the Synthetik posts, I think he’s dead-nuts on…) right now, whatever happened to “I’m glad I bought this place, I think it’ll be a really nice home, a really nice place for me and my wife to live for awhile.”
I concur with the previous posts. Common sense isn’t so common. These buyers have made a bad decision. Both FEAR and love can blind people.
Here is the true test to see if it is a financially smart investment…
Can you rent the house or condo for what your mortgage costs?? If you can do that then you should never lose your house. I cant believe these idiots payed 250+ for a crappy studio…that must be close to $2200 plus home owners…Bad move …
“I cant believe these idiots payed 250+ for a crappy studio…that must be close to $2200 plus home owners…Bad move …”
Maybe a bad move, but it is the norm — and the norm is in a state of flux. Similarly-sized SLU condos would have cost them another $100K to $200K.
Even buildings marketed to first-time home buyers are going to range from $400 to $700 per square foot.
My condo insanity comment:
Several times a week, I walk past an apartment complex in Fremont that is being converted to condominiums.
This complex, iirc, had apartments that rented for around $1000 a month for a two bedroom. Built in the 70s, it has no view, very little light and it’s kind of ugly (but at least they’re gutting the building, and not merely replacing the carpets and the countertops).
Nevertheless, they just posted an informational sales flyer for the condominiums — not one is being sold for less than $290,000.
$300,000 for a crappy, zero-view, zero-light apartment. That’s what I call Insanity.
And just this week, in the Seattle Times was an advert for First Hill condos 2bd/2ba and 2 parking spaces, price slashed from 425K to 360K.
these people are idiots. they should have waited.
Not to mention the fact that, yes, their condo will move in tandem with the rest of the market. so they’ll never get a leg up on that SFH.
Unless of course Cap Hill condos go gold and they trade it in for an SFH in Federal way.
They should’ve sat the bust out and “built equity” saving money by renting.
looks like they may be candidates for NYC style living in tyhe future: a family of 4 squeezed into a one bedroom apt.