Seattle Bubble

It’s been a while since I posted any anecdotal observations, so I think it’s time for a few.

First up, the 8-unit condo/townhome complex in my neighborhood, which we have visited a few times before. Here’s the summary of the action in this complex of eight essentially identical units since 2005:

• September 2005: Unit #5 listed for $274,950 (link)
• October 2005: Unit #5 sold for $280,950 (link)
  18% more than the previous sale just 14 months prior
  +15.5% average YOY
• October 2005: Unit #6 listed for $300,000 (link)
• December 2005: Unit #6 sold for $300,000 (link)
  28% more than previous sale 4 years prior
  +5.8% average YOY
• March 2006: Unit #3 sold for $293,000 (link)
  40% more than previous sale 4 years prior
  +8.26% average YOY
• January 2007: Unit #6 listed for $350,000 (link)
  taken off the market without selling
• April 2008: Unit #5 listed for $360,000 (link)

This latest listing has an asking price 20% higher than any unit in this complex has ever sold for, and 28% higher than this specific unit sold for just over two years ago. We’re talking Kenmore here, which is not exactly “close in,” but not really the boonies either, so this should make an interesting test of how soft the condo market is outside the downtown cores of Bellevue and Seattle.

Personally, I doubt they’ll get more than $320,000, if even that. They may well just pull it off the market when they can’t get their fanciful price. According to Estately, there are 47 condos on the market in the 98028 zip code right now (after eliminating duplicates). This townhome is priced higher than 78% of the competition, and for just $30,000 more, you could get a pretty nice view. Good luck friend, you’re going to need it.

The second anecdotal update is much shorter. Just a quick note to point out that the sellers of my favorite million-dollar home over on Avondale have dropped the price twice now since listing in December at $1,650,000: once to $1,590,000 in March, and again to $1,550,000 a few weeks ago.

They paid $1,275,000 in February last year, and if they don’t get more than $1,385,000, they won’t even make enough to cover agent commissions and excise tax. I have a feeling this will be sitting on the market even longer than the nine months it languished last time.

Update: May 13: Another 60k price drop on the Avondale Albatross, down to $1,490,000. That’s $160,000 in total price drops spread across 150+ days on the market. Coming up quick on that six-month mark…

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Here’s a follow-up to yesterday’s condo re-version story. Just in time for the condo conversion mania to switch directions, while supply and demand do that thing they do so well, here comes the State Legislature to “fix the problem.”

Renters forced from their apartments to make way for condominiums would get more time to find a new home and extra money to pay for it under a new law expected to pass the Legislature.

House and Senate bills being considered could require developers to pay many tenants up to three months rent in relocation assistance, provide at least 120 days’ notice for a condo conversion, and ban construction work during the notice period.

Presently, renters get 90 days’ notice and, in some cases, $500 in relocation assistance from developers.
…
The House already has passed a measure, House Bill 2014. The Senate is considering a more expansive version, Senate Bill 6411, that would give renters 180 days’ notice and also give local governments the ability to cap the number of apartments being converted to condominiums.

Way to go guys. Maybe next you can “do something” about dot-coms with no cash flow that pay their employees in stock options. I hear that’s a big problem.

(Andrew Garber, Seattle Times, 02.05.2008)

The still-tightening market for financing real estate is not only taking a bite out of individuals’ ability to buy homes. It’s also starting to affect the ability of large new construction projects to get financing to even begin building. New projects like a waterfront condo complex in Everett.

The start of condominium construction on the Everett waterfront will be delayed by at least six to nine months after a major financial backer dropped out because of the nation’s mortgage mess, developer Maritime Trust said Monday.

“They just flat out got out of the construction market and are selling the unit that was going to do our construction loan,” Maritime’s Bert Mears said Monday.

He was referring to Merrill Lynch, which fired its CEO this fall after reporting a third-quarter loss of $2.24 billion, primarily due to writing off $8.4 billion in losses in subprime loans.

Lynch had agreed to be the main lender for the $98 million project that involves 137 condominiums. That’s the first phase of a $400 million redevelopment called Port Gardner Wharf for up to 660 condos and additional retail, office and commercial space on 65 acres.
…
Mears said he’s still seeking a replacement lender and may have to wait because of all the publicity about problems in the national housing market.

“We’re talking to a couple of other people,” Mears said. “I don’t think anyone wants to push the button until we get some of this (problems in the nation’s housing market) off the front page.”
…
“It’s extremely important that this project happen,” [Port commissioner Connie] Niva said. “It’s the beginning of a lot for Everett. It signals that private investment can be successful in Everett. If it looks like we can’t get a quality development done in Everett, that’s a problem.”

I really am amused by the rationalization that people are frightened away from investing by news headlines. Of course it doesn’t have anything to do with market realities or the financial bottom line. It’s those darn scary front pages. If only the news would buck up and start reporting all the good things about the housing market, project financing would appear, a horde of individual buyers would storm the market, and the pretty pink ponies would again walk the streets in peace and harmony.

Or something like that.

But not to worry, because the Seattle area is temporarily the most driest part of the sinking ship that is the housing market.

Mears said he’s confident of financial backing for the project because the local economy is strong.

“The good news is that of all the (housing) markets in the country, this is the strongest,” Mears said. “The great news about the Seattle area is the incredible amount of jobs at places like Boeing and Microsoft.”

Ahh yes, Boeing and Microsoft. That would be the Boeing that added less than 200 jobs in Everett (half of which pay $10-$13 an hour) for the fancy new 787 Dreamliner. And the Microsoft that has what, one small office in Everett? Yeah, those two are definitely a great reason to spend 400 million dollars building hundreds of waterfront condos.

I can’t fathom why the investors aren’t falling over each other to throw money at that. I mean seriously. Boeing! Microsoft!

(Mike Benbow, Everett Herald, 12.18.2007)

This post is different from the usual fare here, but I think it’s worth taking some time on. I ran across this post in my news alerts. It’s a look at the human consequences that result when affordable apartments are converted into upscale condos.

I was very surprised at the time that I first wrote about Lock Vista at the seeming bias against renters. No doubt this is a small minority who are particularly vocal, but the sentiment seemed to be, “stop whining about being poor because you’re an artist,” or “if you worked harder, you could own a house.”

I learned that renters have very few rights. One such right is sixty days notification if a rent increase will be over 10%. How generous. Buildings can be sold. Rent control doesn’t exist. The people that I’ve met have owned homes and have chosen to become renters at a different stage of their life.
…
Three hundred sixty-five days in the year but not enough days for the number people being forced to leave Ballard due to economics. The condo conversion at Lock Vista will affect over 200 people; many have already left. Then there are the renters in triplexes and duplexes - most slipping away without any publicity or outcry at all.

Of course, when the alternative to renting costs twice as much and puts you in financial risk of foreclosure should interest rates rise or the value of your home drop, you’re stuck between a rock and a hard place. You can thank your friendly neighborhood housing bubble for putting people in a situation where the only choice is between insecure renting or taking on financially crippling debt.

(Peggy Sturdivant, At large in Ballard, 12.13.2007)

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)