Here’s a great article on the vacant condo situation in Seattle in general and Ballard specifically from The Stranger’s Dominic Holden: Nobody’s Home
“I think that there was some overanticipated demand that was probably not real,” says Matthew Gardner, a land-use economist and principal of real-estate analysis firm Gardner Johnson. He notes that, given the current economic climate, banks are reluctant to lend to homebuyers, slowing the residential market to a crawl.
On a recent Sunday afternoon, despite the buzz of pedestrian activity on the street, I startled sales representative Tamara Hahn at the Hjärta, a condo that began preselling units in December 2005, by opening the door to the quiet showroom. She extolled the building’s virtues—eight stories of steel construction and high energy-efficiency ratings. “Buyers have to have confidence in such a fear-based economy,” she said, noting that the building’s qualities make it exceptional. “They have to feel good about it.”
But it appears few feel that “good” about the Hjärta. Despite Hahn’s claim that the building is 40 percent occupied, online tax records from King County show that only 21 of the 79 units have sold. That is, almost three-quarters of the building sits empty a year after opening its doors. (Follow-up calls to the Hjärta sales office have gone unreturned.)
It’s difficult to get a handle on the precise number of empty condos across the city, since there is no single source of that data. You basically have to go building to building inspecting the county sales records, looking for sales. Also, this method only works with new construction or conversion projects, and doesn’t let us know which units were bought, but are owned by speculators that have never occupied them.
In short, the condo oversupply in Seattle is probably not as extreme as places like Miami, but it is significant and growing.
James » Mar 18, 2009 at 3:21 pm
I realize this is being leaked case by case, but…I gotta think this is par for the course here in Seattle…anything I’m Missing??
Thanks all,
James
Joel » Mar 18, 2009 at 3:36 pm
One and a half years into the local RE downturn and 2 1/2 to 3 years into the national RE downturn and he still isn’t sure.
The Tim » Mar 18, 2009 at 3:44 pm
RE: Joel @ 2 – Heh, hilarious.
newbie » Mar 18, 2009 at 3:55 pm
Speaking of over supply i heard that west seattle will be getting 1000 new units by 2012 (sorry for not having a link to actual data). I live there and see all the construction so it is believable.
EconE » Mar 18, 2009 at 4:33 pm
I’ve heard that once a project is started, that it costs more in the end if you don’t build it.
I guess we will see if that holds true this time around.
With the fear of people being unable to pay their dues and other owners having to pick up the slack, (not to mention a plethora of other potential ugly situations…poor conversions, etc) I can’t see how buyers would even want to be “on the fence” for a condo.
If the builders don’t “mark to market” and get them sold, by the time that they do get them sold, who knows what deferred maintenance issues will lurk, further driving down desire, demand and price.
Watch for a CARP program to be initiated sooner or later.
Condo Assistance Relief Program.
I can see it now…Government funds offered to the mega-builders in order to sell their units at market clearing prices.
Time will tell.
The Tim » Mar 18, 2009 at 4:36 pm
RE: EconE @ 5 – I think maybe Condo Relief Assistance Program would be a better choice.
singliac » Mar 18, 2009 at 4:48 pm
RE: The Tim @ 6 –
Bwahahaha!
Brian in Seattle » Mar 18, 2009 at 4:49 pm
Well, there’s a very simple reason these aren’t selling. The demand is there, just not at the price range they are selling them for. Plenty of 20 something’s like myself would love to buy a condo, but when you can rent a 1 bdrm apt for 800-1100 a month or a large studio apt for even cheaper in the same neighborhood vs buying at the inflated prices of a few years ago, renting is going to win out everytime.
Thankfully,every time I check out redfin, more and more prices for condos are falling below 175,000. A lot of these are crap condo conversions so far, but at least the prices are falling. When the prices fall in line with rents or just slightly above that level, I think sales of these units will start to move upwards.
Until than, enjoy the vacant buildings.
Mark » Mar 18, 2009 at 4:54 pm
The Hjärta looks to be quite pricey for Ballard. Not a lot of value at the current list prices. Of course, you could probably get a 20% cash rebate to keep up the illusion of stable prices.
DavidB » Mar 18, 2009 at 5:09 pm
The common saying has been that Seattle was never as overbuilt as cities like Miami, Las Vegas, San Diego, etc so the bubble never grew here as much as those cities. This is evidence that Seattle may have been late to the party but was still overbuilt.
How long can the builders continue to afford to carry these condos? I expect the number of auctions to increase substantially and a very competitive rental market in Seattle’s near future.
Marc » Mar 18, 2009 at 5:14 pm
Check out this video about the recent sales boom in San Francisco. Seattle condo developers should follow the lead of the developer mentioned in the story if they want any chance of selling their units. Hat tip to Greg Perry over on the Seattle PI blog for the link.
I still find this story almost unbelievable. Can anyone confirm or deny its accuracy?
http://cbs5.com/video/?id=47401@kpix.dayport.com
The Tim » Mar 18, 2009 at 5:21 pm
RE: Marc @ 11 – Sounds like a case of missing information. In the quick list of examples they gave of houses with dozens of offers, we have no way of knowing whether these houses were listed with far below-market asking prices. In fact, the condo guy late in the piece admits that sales have picked up because they have lowered their prices.
No mystery there. It’s been happening all across California. When prices get low enough, sales start to pick back up. And no, it doesn’t magically lead to a sudden increase in prices. Down in San Diego, sales have been increasing for about a year now, but prices are still dropping.
Marc » Mar 18, 2009 at 5:38 pm
Tim,
At some point, and I have no idea where that point is, volume begets volume. Once enough people say “the water’s fine, come on in” herd mentality takes over and others follow suit. Once volume grows enough price drops cease, then they level out, and then they increase.
I’m not saying that buyers are or aren’t making wise choices, but it fits the classic pattern.
The Tim » Mar 18, 2009 at 5:41 pm
RE: Marc @ 13 – I’m just pointing out what is actually happening in places like San Diego where prices have fallen far enough to lure some buyers in. Sales are up, inventory is down, but prices continue to fall.
Marc » Mar 18, 2009 at 5:49 pm
Tim,
No worries. On an unrelated note, I’m looking forward to analysis of today’s announcement of massive Fed purchases by the deflation proponents on this blog. I hope they’ll give these announcements in depth treatment instead of a knee jerk reaction that “it won’t matter, the whole system is coming down one way or the other.”
I mean they should at least consider the possibility that Obama and Co.’s latest salvo may have delayed our destiny for some extended period of time.
Greg Perry » Mar 18, 2009 at 6:07 pm
The interesting thing that is happening in new construction now is that the banks, flush with money are approaching the builders and creating 2/1 buy down ARM programs starting at 3.75% and ending at 5.75% with 20% down up to $1,000,000. For 30 year fixed your are most likely looking at 4.75%.
I’ll bet the banks that are holding the construction loans for the downtown condos will become aggressive with the builder / developers to liquidate the standing inventory.
A perfect storm a-brewing.
Record low rates
higher conforming rates
Jumbo rates are going through the floor, as well
$8,000 tax credit
selection
seller motivation (for the time being)
banks creating special new construction rates
Houses on sale from the peak.
DaveyDave » Mar 18, 2009 at 6:14 pm
By Marc @ 15:
I agree. This is an excellent time to have an inflation/deflation edition. As far as I can tell, the Fed just used the last arrow in its quiver of possible actions to alter markets (real estate, stock and bond) through bond purchasing. Interest rates can’t decrease. And I’m pretty sure the public (and bond purchasers) will give Congress an ear full if more TARP like proposals are ventured. From what I can see, it’s mostly ‘normal’ market dynamics moving forward without the Fed having much more to say about it.
It would be helpful if some of the more experienced/knowledgable weighed in on this — perhaps on a separate thread.
DaveyDave » Mar 18, 2009 at 6:39 pm
Oh, and I owned a condo in NYC and would never do it again. In the city, there’s really not much choice unless you want to be a ‘bridge and tunnel’ because there really isn’t anything other than condos/coops. Seattle is another story with close in houses. There are many difficulties in the ownership of condos, like uncontrollable maintenance fees, living with the board’s decisions, etc. The biggest problem is the difficulty of maintaining value I feel. The supply of condos can increase to meet the demand in pretty short order. Even overshoot as we’re currently seeing. That creates a dampening effect on value increases. Also, your older condo will never look as good as the newer condos that you’ll be competing against when it’s time to resell.
David Losh » Mar 18, 2009 at 7:05 pm
RE: Marc @ 15 – RE: DaveyDave @ 17 –
I agree that today’s announcement was startling. There is more that can be done by the Fed, but I think what they are willing to do is over. As a juxtaposition is this post of what could be thousands of unsold condo units. West Seattle also has a big building boom.
Who would the buyer pool be at this point? We still haven’t seen the REO inventory and the mortgage restrictions for loans makes the buyer pool look extremely conservative. I’m just saying condos look risky, it’s for a younger hard charging corporate crowd with debt and a Mercedes.
wreckingbull » Mar 18, 2009 at 7:07 pm
RE: Brian in Seattle @ 8 – RE: The Tim @ 3 – I’ll add a few reasons which are contributing to Hjarta’s moribund state:
1. Situated near one of the busiest intersections in the city – 15th/Market
2. Sketchy 7-11 next door. I have seen some bad stuff go down there. (The glow from that sign must be soothing though)
3. Southerly view is now a wall of ugly from the new apartment that sprung up across the street.
4. 2006 called and wants its prices back.
They should have priced it right at the beginning, when they actually could have unloaded those units. Too late for that now. The hilarious thing is that I used to bank in the Key Bank in Hjarta. The bank ‘account representative’ who opened my account there told me the place was almost all sold. I seem to recall that Key funded Hjarta. Hmm…..
Marc » Mar 18, 2009 at 7:26 pm
RE: Greg Perry @ 16 –
Greg,
Based on my experience dealing with condo developers and their attorneys, I think pressure from the lenders is just about the only thing that will motivate many of these developers to face reality and drop their prices. The downtown developers in particular. Some of them are so addicted to their own Kool-Aid that they’re decision-making is borderline irrational at this point.
Marc » Mar 18, 2009 at 7:36 pm
RE: DaveyDave @ 17 –
You can put me in the camp that believes inflation is more likely to be the long term problem. Although I’m open minded and would like to see a well thought out dialogue on the subject.
It seems to me that deflation in the short term is already occurring with regard to a number of prices. But I have a hard time believing it will spiral downward from here a la the Great Depression. There is just so much money and credit being extended by the federal government for free (or darn close to free) that it has got to have a net inflationary effect (at least in the long run). Even Bernanke said on 60 Minutes last Sunday that the Fed is printing money to pay for these bailouts.
It will be interesting to see when and how much inflation effects housing prices.
Greg Perry » Mar 18, 2009 at 8:00 pm
RE: Marc @ 21 –
I agree.
Make no mistake, the banks now have the money (and the lever).
I strongly believe they will be forcing the issue with the builder/developers. We’ll know soon. The telltale signs will be heavy advertising on 2/1 buy downs, and increased SOC’s along with reduced pricing and heavy negotiating. As supply tightens, they may relax some.
EconE » Mar 18, 2009 at 9:23 pm
RE: Marc @ 22 –
The money that is being “printed” barely offsets the write-downs from imploding derivatives. They’re not trying to “inflate”…in fact, it’s not so much that they are trying to prevent deflation as much as “implosion”. The amount of garbage derivatives is just mind numbing I’m sure. The problem is also that it’s global. Everybody’s financial institutions had their hands in the cookie jar.
This is where Buffets “financial WMD” statement comes from.
Prices still have to come closer in line with incomes (and the use of NORMAL mortgages with those incomes, not something you have to “Refi” out of)…pretty simple really.
The sooner that prices come down to earth, the sooner everybody can start picking up the pieces and moving on.
economist » Mar 19, 2009 at 1:32 am
Be careful to distinguish between consumer price inflation and asset price inflation. Ditto deflation.
In the 1970’s we had serious consumer price inflation combined with asset price deflation in stocks (”death of equities”). There was not deflation in RE because of increasing wages (due to things like “industry” and “unions”).
Japan has seen major asset price deflation post-1990 in both RE and stocks but has seen consumer price inflation. Small, but still positive.
tomtom » Mar 19, 2009 at 10:16 am
Pryde Johnson must be excited about the possibilities of future condo sales (or at least a few rentals) that they just started breaking ground on Phase II of the Florera near Greenlake. The old medical arts complex next door is coming down!
Or they’re just digging another hole in the ground.
Colin » Mar 19, 2009 at 3:40 pm
Hjarta is a really nice building, especially compared to the ticky-tacky Canal Station. I might have bought there a year ago if prices had been better. I remember they said they were about 40% sold then, too.
They were giving away Vespas last year, if memory serves, which is not the kind of gimmick that inspires confidence in a buyer.
Action Call to Seattle Bubble Readers: Condo Sales Status Project | Seattle Bubble — News & discussion about real estate & the housing bubble in the Seattle area. » Mar 20, 2009 at 11:16 am
[...] just how many unsold condos is Seattle sitting on, anyway? As I mentioned in a post on Wednesday, figuring out just how much unsold condo inventory exists is a daunting task, requiring many hours [...]
@condolaw » Mar 30, 2009 at 3:40 pm
Part of the problem in tallying available condo inventory does have to do with the difference between how the condo developers / marketers want to count “available” and how other records tabulate the data. Developers / marketers are often talking about the number of units with deposits on them or who have signed letters of interest (even when that person hasn’t yet secured financing); records such as KC tax records will only show those bought, sold, and closed.
As has been discussed here, a marketer/developer wants there to appear to be demand because demand begets demand (the hope is).
IMHO part of the overglut is due not necessarily to over building, but to the poor state of the economy. Many who *would* have bought and owned, now can’t / have rethought the purchase. It’s not that there weren’t buyers, it’s just that the landscape has changed so radically (excuse the pun) that potential buyers are backing out of the market.
It’s clear (again, IMHO) that prices were unrealistic. Well… 2007/8 prices are unrealistic NOW (they weren’t in 2008, because people were actually buying at that time.) But when the economy rebounds, I believe the growth/buyers will be there.
Marc @ 21: We’re attorneys for condominium owners, but… I believe it will just be plain old economics that finally gets through to developers: unsold inventory is costly for developers who were NOT counting on paying upkeep / reserves for, when they built, hoping to quickly sell inventory. It only takes a little time of holding on to an unsold unit to become a losing proposition for the developer (witness the recent marketing of a N.Seattle condo development offering to pay your mortgage if you’re laid off as marketing to sell the units: that complex of 109 units is nearing completion with no sold units — they need to sell those units quickly… )
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