Today’s Oregonian story on the Portland condo market is clear and concise with good stats to back up what we know about the condo market right now: it has changed drastically. New construction is ongoing and plans for more are being put on hold and some buildings converted to apartments.
Interestingly, even with all the problems, one interviewee doesn’t think that people will lose money if they got in a couple of years ago, they just aren’t going to make as much as the hoped and the units are taking longer to sell.
The city has a condo glut, and thousands more are rising out of the ground. In the past six years, developers built 4,042 downtown condos, more than twice the figure from the previous 30 years. Today, developers have nearly 2,114 condos under construction.
The Wyatt was switched to apartments but now the article reports developer Robert Ball has sold the entire building!
The buyer that we are working with in the Pearl on a condo made an offer significantly below asking. The seller countered but our counter back was the same price as the first offer we made. That was accepted. Its a new tough reality for sellers but properties are moving.
What was left unsaid is that the condo market is a “canary” for the residential market. The speculators and greater fools also bought houses. The suffering has just begun.
Always a silver lining, eh Charles?
“Its a new tough reality for sellers but properties are moving.”
Albeit at 30-50% off. But I guess the realtors still make $$.
You must have stats that I don’t have: 30-50% off? Do you know anyone that is successful at their job who gets up and says, “my industry sucks, I’m not making any money and I think you should feel sad for me?”
The day I am forced to change careers is the day the silver lining is gone. I wasn’t in the industry in the days of double digit interest rates but I am pretty sure there were Realtors, albeit fewer of them. As this market adjusts, so will the profession. There will be fewer Realtors and that will help the industry.
The silver lining is pretty tarnished. Of course, the greed promoted by the real estate industry brought that on.
This “adjustment” is going to decimate more than just the superfluous agents. Like all bubbles, a few will have gotten rich and many, many more will be hurt.
In the days of doubler digit interest rates housing was still more affordable than it is now.
In the days of doubler digit interest rates housing was still more affordable than it is now.
Good point, Naysayer. When interest rates are high, that’s actually a good time to buy because prices are generally lower and you can always refi later to a lower interest rate…. You can’t negotiate a lower price after you’ve bought high.
Wow, Mish actually commented on this story today on his blog. It’s titled “Every reason to panic over Portland Condo Glut”.
And speaking of fundamentals, it is highly likely that Portland job growth is a mirage just as Florida’s job market was. Sure there are plenty of construction jobs as long as there are fools building an unlimited supply of condos and houses that will not be sold for years. The job picture in Portland will change once all of this nonsensical building stops. It looks like every city has to discover this by itself.
If we do see prices decline 30-50% in these condos, my biggest reservation about scooping up one of those deals is the HOA. Can anyone provide insight, either historical or legal, into what happends to HOAs in a situation where cash strapped owners stop paying dues and eventually get foreclosed on by the bank because they also weren’t paying the mortgage…but the sale doesn’t cover the mortgage? Where in line does the HOA sit in collecting? What protection exists for the paying owners? What should a prospective buyer look out for?
And speaking of fundamentals, it is highly likely that Portland job growth is a mirage just as Florida’s job market was.
So what is the outlook for Portland’s job market? Does anyone have an inside scoop?
Year-over-year employment growth in Portland is showing signs of slowing. In the first 8 months of 2007 Portland’s monthly year-over-year growth level averaged roughly 18,450 jobs, significantly less than 33,500 during the same period of 2006.
When I bought new construction, the CC&R’s explicitly stated that the developer was on the hook for HOA fees from unsold units.
In an existing building, all the HOA can do is place a lien on the property for the HOA fees that are owed. My bet is they’re near the end of the line of creditors, though; I’d be surprised if they get anything in a foreclosure.
What do you look for? Hefty HOA reserves. Make sure the HOA is on solid financial footing before you buy in a building.
“Interestingly, even with all the problems, one interviewee doesn’t think that people will lose money if they got in a couple of years ago, they just aren’t going to make as much as the hoped and the units are taking longer to sell.”
Once again, this seems to be exactly what everyone said in all the other cities about a year ago. So I’ll give it about another year in Portland before the conventional wisdom is that supply and demand does in fact work.
Whenever I hear a developer say “don’t panic”, I’m inclined to think that he means “don’t panic until I’ve sold all my units first.” There is absolutely no incentive for the developer or the financer to go on public record and state that the oversupply may lead to a price decrease.
Don’t panic – but if you do panic make sure you panic first 🙂
This is a mirror of San Diego a year back before the general declines started there. I know I was living there at the time. The media was putting out the same stories about it being limited to condo’s and “Different here” due to good fundanentals.
Realtors where spouting the same crap as they are here in the papers.
This time next year panic will well and truly be setting in – FHA limits for PDX are $320k ish – so anything above that is nonconforming and the days of nonconforming loans being 100% LTV are over.
It’s going to be 10-20% down again pretty soon – so raise your hand if you have 50k-100k in your back pocket in cash…
Git-FHA does not set conforming loan limits, I think the limit you are referring to is for FHA loans. Conforming limits are $417k this year, set by the GSEs (Fannie Mae/Freddie Mac). Couple that with a second mortgage and you can still get favorable terms on homes over half a million. Watch October prices because that will be the basis for next year’s limits…but don’t expect the limit to go down because there is flexibility in setting those limits.
I agree with you that prices have quite a way to fall, but make no mistake-buyers are still out there finding ways to overextend themselves.
make no mistake-buyers are still out there finding ways to overextend themselves.
I think that we’d all be in a lot better shape if whenever anyone went to apply for any kind of loan (mortgage, auto loan, credit card, etc) they were first required to sit though a 1-hour Dave Ramsey seminar 😉
Nobody should be allowed out of high school without a consumer finance class.
Regarding the HOA and foreclosures. I had a friend who a few years ago purchased a unit in Idaho, and within a year he was offered an opportunity he could not pass in Seattle. The problem was that he purchased into a Association of a bunch of deadbeats. There were 4 (FOUR!) foreclosures during his short stay. What did this do to property values? I’ll give you a hint: There wasn’t a line waiting at the door to buy.
He ended up renting the unit for two years for what he termed “at a loss.” (I think it was both an accouning loss (i.e. income-expenses=negative number) as well as net-negative cash flow (i.e. monthly cash in-monthly cash out=negative number), but since the underlying value of the property did eventually rebound, it is not as clear if it was a loss measured as measured in finance terms (i.e. The underlying market value was increasing fast enough that based on a present value of money metric, his discount rate was probably lower than the increase in market value of the property).
In fact, he could not sell if he wanted to, as he would have had to sell short, and I doubt the bank would have agreed to that (again, the conditions were different at the time, and the problem was the high rate of foreclosure in a very small area). So he “took his loss” for a couple of years until the HOA was better off, and the community was once again attractive to buyers.
He did find out one thing, however, as an owner the bank has a much different outlook than owner occupied units, and owners in owner occupied units have a different view than owners who rent the units out.
When you buy in an association, you accept the credit risk of the other owners, and they accept you as a risk. Like many things in housing, generally everything goes smooth, but a single problem can be tragic.
Re: Comsumer education/ finance classes.
Heard a story on NPR a few years ago about this. Seems a certain political group (read, “republicans”) doesn’t want this kind of education and fights attempts to offer it. Speculation is that an informed consumer is one that’s harder to screw out of money and who spends less.
They offer this kind of education in Europe, the story said. That could be why Europeans save on average 10-15% of their income and don’t spend their lives shopping. That explains their lower GDPs. I read about that last part in the Wall Street journal.
America: The best place to sucker your fellow man. The behavior of the real estate industry of the last decade is a good example.
An anon post on the portland housing blog has the September MLs action as:
Sales down 27%.
Median down from 300 to 283K. It will be very interesting to see if this is true.
If so, RUH OH.
Bare in mind that these numbers will cause panic among speculators. Many of them moved to Portland because they started taking baths in CA, FL, AZ, and NV. How many flippers are going to have the conjones to hang onto the property until sping ’08. Anyone with half a brain knows that ’08 is going to be brutal for real estate speculation.
This good article as my reference