Weekend News Roundup – Rents Flattening, Development Halting

I was out of town all weekend in SF (driving back yesterday was not particularly fun, I assure you). Here’s a roundup of some of the local and notable national real estate stories that were waiting for me in my inbox upon my return this afternoon:

First up, a blog post by P-I real estate reporter Aubrey Cohen: Apartment market not so hot, report says

Dupre + Scott forecast in September that market vacancy (not counting new construction in lease-up) would rise from 4.8 percent this fall to nearly 6 percent by early 2010. They now say it will peak at 7.3 percent in June 2010 but won’t get back into balance until early 2012.

“Except for properties still catching up to the market, we expect no rent growth in 2009 and 2010,” they said.

Note that 17 months ago in response to one of the all-too-common rent-increase scare-mongering articles, I made the following prediction:

…rent increases will have tapered off significantly by this time next year.

Looks like I was a few months early, although I was predicting that increases would continue (rather than drop to zero), just at a lower rate more in line with incomes. Looks like a wash to me.

Also of note is this piece from the Seattle Times: Quadrant development at standstill

Washington’s largest homebuilder, Quadrant Homes, has stopped building and selling new houses at one of its developments, at least in part because of slow sales.

Quadrant’s move to halt work at The Ridge at Gig Harbor, a 120-lot project, may be the first work stoppage at a major subdivision in the Puget Sound area since the housing market turned south last year, several industry officials said.

It’s another sign of the downturn’s severity, they added.

Construction at the Gig Harbor development began last year. Streets and utilities are in place, and about a dozen houses have been built or are under construction.

Quadrant President Peter Orser characterized the Gig Harbor decision as “a suspension, not an abandonment,” and said it would be temporary. The company has suspended work on developments at other times during his 21 years with the company, he said, “but probably not to this degree.”

I mentioned this on the forum a month ago, but was unable to obtain the specifics of the situation.

Here are a few other local headlines:

Seattle P-I: Timber, but no homes, on 45,500-acre swath
Seattle Times: Vulcan buys another South Lake Union parcel
Seattle P-I: Navy buys 155 lots in Snohomish County

And just for good measure, here are a couple major national stories that folks emailed me over the weekend:

USA Today: Why home values may take decades to recover
CBS News: A Second Mortgage Disaster On The Horizon?

(Aubrey Cohen, Seattle Real Estate News, 12.12.2008)
(Eric Pryne, Seattle Times, 12.12.2008)
(P-I Staff, Seattle P-I, 12.10.2008)
(Seattle Times Staff, Seattle Times, 12.10.2008)
(Eric Nalder, Seattle P-I, 12.10.2008)
(Dennis Cauchon, USA Today, 12.12.2008)
(CBS News, 12.14.2008)


About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

14 comments:

  1. 1
    Andy says:

    Gig Harbor is a great place, but vastly overvalued!
    Apparently there is a 8-12 year supply of new homes…..lol!!!
    I’m looking at bidding on a 4000 sq foot home.
    It’s currently listed at $675K
    I’ll bid $450k to start, don’t think I will go over $480k.
    I figure that a 35% haircut is fair…
    Hey, my cash is green. Not many people have $150K to put down to qualify for any loan…!!!

    I told my “i know this market better than anybody” real estate agent: “This was listed at $1MM before. Now it’s fallen 40%. Why can’t I get more off….?

    Her response…”Ughhhhh.. I think that would piss off the seller.” I asked her what a comparable would have sold for in 1998. Thats what I believe the market is.

    Stupid real estate agents. What do they do anyway? Take what you can get.

  2. 2
    Scotsman says:

    It’s hard to imagine developers, etc. not seeing the change that was bearing down on them. One of the things I try to teach my kids is to extrapolate out any kind of questionable behavior to see what happens over time if everyone persists. If no one ever cleaned their room, what would it look like after 10 years? If everyone cheated on exams, how competent would the next generation of doctors be? For our developer friends, If house prices increase 12% a year and incomes only 3%, what happens in 15 years?

    Despite technological changes, etc., life still seems to move in cycles. The business cycle is pretty well documented. Other longer cycles, such as the Kondratieff wave are so long that they tend to be overlooked or forgotten. What does the K-Wave suggest about future rents and home values?

    http://www.kwaves.com/wave1.gif

  3. 3
    Still Renting says:

    No kidding! My apartment complex has been sending around letters offering to extend leases early (over 6 months early!) with no increase in rent in order to “give you some budget certainty.”

  4. 4
    Andy says:

    The builder in my complex provided a lease to own option to continue to string out the bank loan.

    The poor saps who picked up the crappy properties before (in 2007) keep asking if I will eventually buy. They paid $300K for nice but vastly overpriced condos. They were sold by heartless agents pandering their wares like grocery clerks.

    Currently, the market is commanding a 50% discount (per what MBS loan foreclosures are selling for – 35c on the dollar). No one is buying and the builder is begging residents to understand that they have to list at a significant discount. Homeowners that have moved in (pre-seattle crash) are angry – and rightly so.

    i though real estate was just supposed to be somewhere to live. These shamucks are basically begging others to pay what thye did in a “hot” market. “Please don’t depress the value of my home – they say.”

    Interestingly enough, if any moron llistens to the news or reads the paper – they will realize that their so-called investment is worth at least 15% less. Just let the builder move the inventory.

    I have no neighbors and am considering extending – but asking for a 40% haircut on the lease. Like all grave dancers, I don’t mind making a buck.

    I want to ask the builder+lease agents: “Do you want to pay for the heat..?” Pipes freeze, you know.”

    Rents need to drop 30%; real estate needs a 60% haircut. Don’t pay what the criminals ask for. Let’s bring this market down to reality – pre 1998 levels.

  5. 5
    Ray Pepper says:

    Andy you will bid 450k on a home listed at 675k. Are you nutts? You said yourself there is an 8-12 year supply. Why would you bid so high? Wake up and start at 300k like everyone else is. Wait until it goes into foreclosure. Good Lord you need an education before you Buy in the 98332/98335.

  6. 6
    Ray Pepper says:

    As for your “stupid real estate agent”…..When ever I hear this I must state….The agent isn’t stupid. Always look at the person who hired her. If anyone ever told me “it would upset the seller” she would be immediately terminated.

  7. 7
    Ben says:

    Ray – two great points and no advertising. Bravo! (I am totally serious)

  8. 8
    Andy says:

    Agreed,

    I will bid 300k. However, I did not hire my Agent. I found her accompanying this home. Perhaps I should negotiate directly with the bank…?

    The builder is bust..

  9. 9
    Pegasus says:

    I track SFH in South King Co. on Craigslist. The amount of homes listed for rent is up over 100 percent in a year. The rental rates are still all over the place but lots of homes are now available for rent at prices that I have not seen for 2 to 3 years. The homes that are out of wack with reality are showing up still for rent for months. As most know Craigslist is not the best way to rent SFH. Driving the area and looking for “For Rent” signs is. Welcome back 2005 rates!

  10. 10
    Slumlord says:

    The Times piece on the dead Quadrant project in Gig Harbor is a good anecdotal story, but I take exception to one phrase saying that it “may be the first work stoppage at a major subdivision in the Puget Sound”. There are plenty of other dead subdivisions around and some of them are bigger, though I don’t know enough about the timing of work stoppage to evaluate which was first to die.

    One highly visible example is in Snohomish County – The Crossings at North Creek. The Crossings is at the northeast corner of I-5 and 128th Street (exit 186). There are roads and utilities for 245 lots, twice as many as the Quadrant project. Construction has begun on around 15 homes and, as far as I can tell, no construction activity has happened in months. You can see several of the houses from I-5 and they are clearly taking weather damage because they have no siding or windows yet.

    What is especially galling to me about The Crossings is the stupidity of the developer, because the site has zoning for mid-rise condos or offices. Surely, it would have been smarter to wait for one of those markets to take off rather than waste the land at the end of a bubble.

  11. 11
    Yesler Hill says:

    Rents haven’t even begun to drop.

    The poster above who mentioned the landlord trying to get you into a new lease – offer them below your current rent. Theya re trying to get you to stick to a rent that will be above the going in rate in 30-60 days. Though, if you are job secure, and can well afford the rent now, take the lease; but don’t hesitate to ask for things to fixed. The landlords are just abt all the way over the barrel.

    I’ve mentioned this before; my unscientific use of craigslist to track Seatle rents.

    Search for “Capitol Hill” and put in 900 as top rent. It’s gone from 20-30 in August to over 180 now, if you enter 850 as the top rent you see 150+ apts on CH. And this is just the bare beginning.

    Us renters are lucky because of recent federal regs/legislation that makes sure renters are not evicted if the landlord goes bust.

    Ah, to be 20 again. This would be the time to strike out and not get caught up in the whole career path cul d’ sac.

    Deflation is my friend; keep repeating that. It’s soothing and will help you sleep.

  12. 12
    Slumlord says:

    Yesler,

    Your advice is sound. I keep my rents somewhat below market in order to retain tenants. On my end, accepting 5-10% less income goes a long ways toward keeping the units full, and ultimately is better for my business. My best friends are other landlords who charge too much.

  13. 13
    shane says:

    We signed a new lease a few weeks ago and rent stayed the same as last year. Another nonsense RE theory upended by reality.

  14. 14
    Flotown says:

    Deflation is only your friend if you have little or no debt, savings, and can be assured of keeping your job. …that description applies to a very small percentage of the populace. Furthermore, Bernanke and Co. have telegraphed that they will do everything in their power to devalue the dollar and get inflation positive. ….Like you, I’m enjoying deflation now, but its politically untenable and our Ponzi gov’t finance system depends on inflation. I’ll ride deflation while it lasts, but I’ll be ready to turn on a dime and load up on assets (read : real estate) at cheap fixed rates into what will be an inflationary environment once that writing is on the wall. I think the tell will be: 1) stabilizing housing prices 2) stabilizing employment. these will be brought about by fiscal stimulus that drives *wages* higher (building programs) and devaluation of the dollar to stimulate exports and foreign investment. Just my $.02

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