It looks like the picture for renters may not be quite as bleak as we have been led to believe in recent articles. Turns out that new apartments are being built, and even some condo projects are becoming apartments instead.
Apartments have been the poor stepchild to condominium towers over the past few years in downtown Seattle. They’re back in vogue now, but the national housing storm may dampen their return to prominence.
“Isn’t it always this way?” Seattle’s Dupre + Scott Apartment Advisors asked in a December report on the apartment market. “Apartment development picks up just as our economy slows down.”
Los Angeles developer Urban Partners announced Monday that it had broken ground on Aspira, a 37-story apartment tower on a former church parking lot at the southwest corner of Stewart Street and Terry Avenue. The Hanover Co., of Houston, is already building the Olivian, a 27-story luxury apartment building at Eighth Avenue and Olive Way, and several other towers are in the works.
Aspira was originally slated for condos. Julie Benezet, managing director of the Urban Partners’ Seattle office, attributed the change to a glut of announced condominium projects, skittishness among the investors who fund condo towers because of condo speculation in other parts of the country, an apartment supply that has shrunk because of a lack of new construction since the dot-com meltdown in 2001 and conversion of existing apartments to condos in recent years.
The article goes on to quote predictions (by Matthew Gardner, amazingly enough) of slowing job growth, rising vacancy rates, a “complete stop” of condo conversions, and stabilizing rents (i.e. tracking with salaries). Now where have we seen this pattern before? Hmm… Oh yeah, pretty much every other bubble city that has seen their market deflate before us.
So much for all the anti-rent scare tactics to keep up the flow of suckers buying overpriced homes.
(Aubrey Cohen, Seattle Times, 12.10.2007)
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See my post immediately above.
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Agreed. That affects my rent vs. buy decision. Suppose the real value of a typical house falls $300 a month for 20+ years. That might be an acceptable cost for those who prefer to own.
It’s like buying a car. If Seattle Bubblers analyzed cars like they analyze houses, they’d all drive beaters since newer cars depreciate faster. But I bet there’s some nice wheels among the group. They are willing to lose money forever to enjoy the nicer ride.
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Does anyone know whether Japan had anything comparable to the adjustable rate mortgages during their bubble? Did their phenomena have any sequential events equal to tighter lending standards occurring about the same time as monthly payments balloon en masse like the US is on track toward?
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See my post immediately above.
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Some, perhaps. For me it’s a decision of buy now, or wait 12-18 months. I decided to wait in the crazyness of last fall (2006) after having lost out in 3 multiple bid situations. At the time I was reminded of the “winner’s curse” where the only IPO you can get your hands on is the one that sucks. Now, we’re about 3 months from being back where I got out, and I can take my sweet time picking and choosing. I don’t need to find the absolute bottom (nor do I think we are close to it) If I miss it by six months, that’s ok. I already rode the market up for nine of the last 10 years – so I’m not shedding any tears.
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In the Japanese bubble they developed the 3 generation or 90 year mortgage.
At the peak of the bubble in Japan, just the real estate in Tokyo was worth on paper a few trillion more than all of the property in the US is worth on paper today.
20 trillion or so in paper value was wiped out in both the stock and real real estate markets.
There were no CDO’s since CDO’s were invented by our government as a solution to the S&L scandal, banks held most of the loans, and some of the US S&L debt.
Japan was much much worse.
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B&W Nikes – Japan had very little debt, public or private. They were on top of the world economically. Some think the Bank of Japan didn’t lower rates fast enough, but their rates were not that high to begin with. Credit was readily available. No they did not have anything like adjustable rates. China and India were growing rapidily and Japan was the main beneficiary of that growth.
Their bubble popped, and the Japenese consumer stopped buying, borrowing and investing in the stock market, even though interest rates declined to zero. Instead they increased their savings rate, which already was the highest in the world.
The social mood changed from optimism to pessimism without any apparent reason. It is believed that mass social mood changes are endogenous, and external causes are for the most part irrelevant.
Compare that to the US national debt. Including unfunded liabilities, it is over $400,000 for each American family. Considering the vast majority of Americans can’t write a check for $10,000, you can see the untenable situation we are in.
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Good strategy. My situation is that I’m relocating w/in the Eastside due to my workplace having moved. I would have rented for a while but was surprised by a relatively great deal that was sitting unsold and that I liked a lot. I don’t like most Eastside houses; I see maybe one house I want every six months. Being picky costs me one way or the other. In normal times I’m outbid, like what happened to you.
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And yet they still buy their daily $3 latte! And vote Republican (e.g. vote to shower the rich with borrowed money)! You’ve hit on the prime difference between the bubbles. Most Americans don’t have a clue of their true financial situation. That may save us. They’ll still be spending frivolously at the market bottom, so that the bottom is not as deep.
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Thanks rdc & garth – Their example comes up a lot, especially in conversations about prices being slow and sticky on the way down. We have a different kind of bomb to defuse here and now. I also wonder if there is an analogous valuation of NYC compared to the rest of the country, as is often used in the Tokyo comparison. Four bedroom apartments averaging 10 million clams in Manhattan seems pretty over the top.
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I’m not sure if rbp’s first paragraph is entirely accurate / in context.
As for rates, the fed in japan likes to put their rates so low it creates a substantial yen carry trade, the US can’t really do this as other federal reserves adjust their rates based on our fed.
I find it hard to compare any recessions / crashes previous to the S&L scandal to those post as the impact of the invention of the SIV / CDO seems to be pretty profound.
Now that these things are no longer liquid and are the problem not the solution, we are in uncharted territory.
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NYC data is here:
http://en.wikipedia.org/wiki/New_York_City#_note-NYC_real_estate
http://www.nyc.gov/html/dof/html/pdf/07pdf/tent-ass-roll-07-08t.pdf
Assessed value in 2006 was ~800 billion (search for 71 in the wikipedia article)
Tokyo was worth 20 trillion in 1990 dollars.
Manhattan first sold in 1626 for $24, somebody needs to make a excel chart :)
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Garth – My first paragraph is a little disjointed, the point I was trying to make was that the Bank of Japan was not tightening, they had a very loose monetary policy. The purpose of which was to try and stimulate the Japenese consumer to borrow, spend, and invest in order to put the brakes on the deflationary collapse that was occurring. It did not work, just like it won’t work here.
The Yen carry trade was one of those unintended consequences that government programs always seem to create. It’s impact on the Japenese economy was minimal, but it did wonders for expanding credit and leverage world
wide.
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nice one Garth… but the quote from the NYT Bubbles Hurt article says
not just Tokyo. If it were true, twenty four 1624 dollars worth of beads must have seemed an impressive haul to grant fishing and hunting privileges to the newcomers. :)
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“In normal times I’m outbid, like what happened to you.”
Those were the *abnormal* times.
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Internet data of the for the japan bubble is kind of weak, as google wasn’t indexing things, and I don’t think the Japanese did a ton of public analysis.
I took a fantastic international business class in 1997 and wish I could find my course materials.
Either way it is a paper peak and the total value at the peak is only a estimate.
http://www.jahrbuch2000.studien-von-zeitfragen.net/Weltfinanz/Hedge_Funds/hedge_funds.html
rbp,
Being that their rate was effectively 0 at points during and after the buble that seems pretty loose. The stock + real estate combo that was in play in Japan at the time I don’t think compares to the current US situation in regards to the impact of adjustments in the fed’s interest rate.
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This is true.
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Thanks Garth, fascinating stuff. It looks like there was a powerful element of economic policy muscling from the US and the Europe that drove Japan’s slide well beyond the consequences of their own euphoric rise.
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FWIW – another reason why I think those Goldman guys are pretty smart…
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