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Seattle Condo Pipeline to Dry Up!

By Matt Goyer May 21, 2008

Equinox and Gallery forwarded the PSBJ article on the Seattle condo pipeline drying up [pdf] to subscribers of their mailing list yesterday.

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28 responses to “Seattle Condo Pipeline to Dry Up!”

AJ says:

May 22, 2008 at 4:26 pm

PSBJ failed Economics 101. The condo boom is over, and with a darker economic outlook, many condo’s will stay on the market for much longer because the supply in Seattle is much higher than demand. We are already seeing financing fall through for condo buyers, and foreclosures aren’t far away.

The condo consultant has it completely backwards. The MLS shows sales are down and supply is up. Some projects are converting to apartments. All the evidence points to a lack of demand for condo’s, not a coming boom market. The pace of condo development in Seattle in the last few years was way ahead of the demand. The only ‘kink’ in the pipeline is a lack of buyers, not a lack of condo’s.
AJ says:

May 22, 2008 at 8:26 am

PSBJ failed Economics 101. The condo boom is over, and with a darker economic outlook, many condo’s will stay on the market for much longer because the supply in Seattle is much higher than demand. We are already seeing financing fall through for condo buyers, and foreclosures aren’t far away.

The condo consultant has it completely backwards. The MLS shows sales are down and supply is up. Some projects are converting to apartments. All the evidence points to a lack of demand for condo’s, not a coming boom market. The pace of condo development in Seattle in the last few years was way ahead of the demand. The only ‘kink’ in the pipeline is a lack of buyers, not a lack of condo’s.
Chris says:

May 22, 2008 at 4:31 pm

I can’t believe that was in the PSBJ. Did Dean Jones write the article himself?

121 new construction condos sold in Q1 08 in the entire City, that’s why you can’t build condos. If demand were so great, the developers would hit pre-sales requirements and be able to get financing.

Also, not a word of the all the high-end apartment starts recently. Hmm, I wonder if they could be competitive with condos?
Chris says:

May 22, 2008 at 8:31 am

I can’t believe that was in the PSBJ. Did Dean Jones write the article himself?

121 new construction condos sold in Q1 08 in the entire City, that’s why you can’t build condos. If demand were so great, the developers would hit pre-sales requirements and be able to get financing.

Also, not a word of the all the high-end apartment starts recently. Hmm, I wonder if they could be competitive with condos?
Eric K says:

May 22, 2008 at 6:17 pm

They’re half right – the developers can’t get financing. But they totally ignore the fact that most buyers can’t get financing either.

Banks across the world levered up their balance sheets, and now that some of their mortgage assets are going bad, their ratio of reserves to performing assets has gone to dangerous levels. That have been trying to improve that ratio by issuing stock to raise capital and by reducing lending by tightening lending standards.

Socketsite, a great SF blog, has reported that most buyers within SF city limits must now put 15% down — the 80-10-10 loan of a few years ago is simply unavailable at any rate. That’s an increase of 50% in the amount of down payment buyers must bring to closing, which is preventing many buyers from closing.

That’s why the Moda pre-sale buyers haven’t been able to close. We’ll see this again and again with presold units.

We had almost a decade of credit expansion, so it’s likely that credit will continue to contract for at least the next year or two.

However, sellers are stubborn about prices, so it will probably take a change of control (foreclosure) before prices get to levels where it makes sense to buy. And when that happens, there will be so much talk about how condos are a terrible investment, too many of the units in the building are owned by non-occupants (banks, investors, etc.), that few people will _want_ to buy.
Eric K says:

May 22, 2008 at 10:17 am

They’re half right – the developers can’t get financing. But they totally ignore the fact that most buyers can’t get financing either.

Banks across the world levered up their balance sheets, and now that some of their mortgage assets are going bad, their ratio of reserves to performing assets has gone to dangerous levels. That have been trying to improve that ratio by issuing stock to raise capital and by reducing lending by tightening lending standards.

Socketsite, a great SF blog, has reported that most buyers within SF city limits must now put 15% down — the 80-10-10 loan of a few years ago is simply unavailable at any rate. That’s an increase of 50% in the amount of down payment buyers must bring to closing, which is preventing many buyers from closing.

That’s why the Moda pre-sale buyers haven’t been able to close. We’ll see this again and again with presold units.

We had almost a decade of credit expansion, so it’s likely that credit will continue to contract for at least the next year or two.

However, sellers are stubborn about prices, so it will probably take a change of control (foreclosure) before prices get to levels where it makes sense to buy. And when that happens, there will be so much talk about how condos are a terrible investment, too many of the units in the building are owned by non-occupants (banks, investors, etc.), that few people will _want_ to buy.
Jim Reppond says:

May 22, 2008 at 6:38 pm

There are some very basic market forces in play here. Yes, the downtown condo market is slow now, and it may be that way for a while. But it won’t be that way forever. And just like you could predict that the “condo boom” was going to burst, you can predict that future demand will at some point pass up the supply in the pipeline and there will be a tight market again. These cycles are almost as old as time.

These days We have some great tools to predict these things, if we choose to. History tends to repeat itself and when you look and the demographics, job growth, number of existing units, units under construction or being planned, it’s not rocket science to see it’s not that far out.

BTW – before someone decides to jump on me – Yes, I have an agenda. I am a Realtor with a passionate belief in real estate and look forward to a stronger growing market again. Also, see the “Q13 News Report” regarding this PSBJ article where I was interviewed.
Jim Reppond says:

May 22, 2008 at 10:38 am

There are some very basic market forces in play here. Yes, the downtown condo market is slow now, and it may be that way for a while. But it won’t be that way forever. And just like you could predict that the “condo boom” was going to burst, you can predict that future demand will at some point pass up the supply in the pipeline and there will be a tight market again. These cycles are almost as old as time.

These days We have some great tools to predict these things, if we choose to. History tends to repeat itself and when you look and the demographics, job growth, number of existing units, units under construction or being planned, it’s not rocket science to see it’s not that far out.

BTW – before someone decides to jump on me – Yes, I have an agenda. I am a Realtor with a passionate belief in real estate and look forward to a stronger growing market again. Also, see the “Q13 News Report” regarding this PSBJ article where I was interviewed.
jo says:

May 22, 2008 at 6:52 pm

“Thats why the Moda pre-sale buyers havent been able to close.”

I don’t think anyone there has been able to close yet, especially since the building is still months out from completition

:)
jo says:

May 22, 2008 at 10:52 am

“That’s why the Moda pre-sale buyers haven’t been able to close.”

I don’t think anyone there has been able to close yet, especially since the building is still months out from completition

:)
PistolPete says:

May 22, 2008 at 10:43 pm

Jim,

My intent is not to bash Realtors with the forthcoming comments. I agree with notion that everything that goes up must come down and yes, history does repeat itself in many cases. Kudos to you for having an agenda since this is your livelihood.

I do however, disagree with so many jackass realtors out there that I’ve spoken with who consistently say, “Now is a great time to buy!” – “The market will not get any worse!” – “The housing market prices will not worsen!”. Those words are only used to write checks to cover their own ass and keep a roof over their head.

I have yet to meet an honest realtor who is looking out for the best interest of the buyer. If many of them take the time to do some research, they should know that by taking actual care of ONE customer, it will lead to many more referrals and sales in the future.

Okay, I’m done venting, sorry everyone…just got done being pressured by an agent who kept calling me every day to talk me up on buying a place. Enjoy the holiday weekend!
PistolPete says:

May 22, 2008 at 2:43 pm

Jim,

My intent is not to bash Realtors with the forthcoming comments. I agree with notion that everything that goes up must come down and yes, history does repeat itself in many cases. Kudos to you for having an agenda since this is your livelihood.

I do however, disagree with so many jackass realtors out there that I’ve spoken with who consistently say, “Now is a great time to buy!” – “The market will not get any worse!” – “The housing market prices will not worsen!”. Those words are only used to write checks to cover their own ass and keep a roof over their head.

I have yet to meet an honest realtor who is looking out for the best interest of the buyer. If many of them take the time to do some research, they should know that by taking actual care of ONE customer, it will lead to many more referrals and sales in the future.

Okay, I’m done venting, sorry everyone…just got done being pressured by an agent who kept calling me every day to talk me up on buying a place. Enjoy the holiday weekend!
Jim Reppond says:

May 22, 2008 at 11:02 pm

Okay, PistolPete,

I’m glad you got that out of your system. I hope you find a Realtor who will truely represent you someday. I understand we have a bad reputation out there and many people think about as highly of us as used car salesmen or lawyers, well … almost as highly :-)

I’m not going to blow smoke at you and say the market isn’t going to go down anymore. It might. On the other hand, there is lots of data (not media hype) that says it might not go down much further, if any. The one thing I WILL tell you, is that historically those who try the hardest to catch the bottom of any market, usually end up missing it. Why? Because you won’t know where the bottom of any market is until it’s past.

There’s no crystal ball. Personally, I think we need to hear some good news on several fronts for confidence to come back into the real estate market. We need to see fuel prices and the finacial markets stabilize at a minimum.

Our market here has done remarkably well comapared to almost everywhere else nationally, but we are not immune. This has been a tough time for us and market corrections have been happening for awhile now. I’m not going to appologize for hoping we have seen the worst of it. My life and many others in the real estate industry will be much better when we can clearly see a strong and growing market again.
Jim Reppond says:

May 22, 2008 at 3:02 pm

Okay, PistolPete,

I’m glad you got that out of your system. I hope you find a Realtor who will truely represent you someday. I understand we have a bad reputation out there and many people think about as highly of us as used car salesmen or lawyers, well … almost as highly :-)

I’m not going to blow smoke at you and say the market isn’t going to go down anymore. It might. On the other hand, there is lots of data (not media hype) that says it might not go down much further, if any. The one thing I WILL tell you, is that historically those who try the hardest to catch the bottom of any market, usually end up missing it. Why? Because you won’t know where the bottom of any market is until it’s past.

There’s no crystal ball. Personally, I think we need to hear some good news on several fronts for confidence to come back into the real estate market. We need to see fuel prices and the finacial markets stabilize at a minimum.

Our market here has done remarkably well comapared to almost everywhere else nationally, but we are not immune. This has been a tough time for us and market corrections have been happening for awhile now. I’m not going to appologize for hoping we have seen the worst of it. My life and many others in the real estate industry will be much better when we can clearly see a strong and growing market again.
EconE says:

May 23, 2008 at 2:21 am

Jim…please show us this “data” that you refer to that says “it might not go down much further”.

Most data I have seen (not hype) shows that with all of the Alt-A resets starting in 09, we should be in for a bumpy ride.

Oh…yeah…WRT to “timing the bottom”…sorry…bottoms aren’t V shaped. Never have been, never will.

My own research shows me that there are MANY downtown condos held by RE agents as “investments”. Many of them are trying to dump them currently. I personally won’t buy from a speculator unless it’s after it has gone back to the bank.

You can call us potential buyers “irrational”…but we are the market. And as the quote goes…”the market can stay irrational longer than you can stay solvent”.

Please don’t take this as a personal attack as I’m not referring to you. Just RE speculators in general. And just like my instincts told me a year ago…there were FAR more units going to speculators than I was led to believe by the comments coming from RE agents stating that only X% were sold to speculators.

And please stop with the “crystal ball” comments. RE clerks were all too sure of themselves on the way up…now they just want to shrug their shoulders and play dumb.
EconE says:

May 22, 2008 at 6:21 pm

Jim…please show us this “data” that you refer to that says “it might not go down much further”.

Most data I have seen (not hype) shows that with all of the Alt-A resets starting in 09, we should be in for a bumpy ride.

Oh…yeah…WRT to “timing the bottom”…sorry…bottoms aren’t V shaped. Never have been, never will.

My own research shows me that there are MANY downtown condos held by RE agents as “investments”. Many of them are trying to dump them currently. I personally won’t buy from a speculator unless it’s after it has gone back to the bank.

You can call us potential buyers “irrational”…but we are the market. And as the quote goes…”the market can stay irrational longer than you can stay solvent”.

Please don’t take this as a personal attack as I’m not referring to you. Just RE speculators in general. And just like my instincts told me a year ago…there were FAR more units going to speculators than I was led to believe by the comments coming from RE agents stating that only X% were sold to speculators.

And please stop with the “crystal ball” comments. RE clerks were all too sure of themselves on the way up…now they just want to shrug their shoulders and play dumb.
Dan C says:

May 23, 2008 at 4:12 am

Also, you cannot measure the past few years to ANY cycle that has ever occurred in history. This kind of rampant credit expansion and speculation will never happen again…ever. Banks are much smarter than that. We will never reach the pricing and demand levels we have known in recent past.

This was not a “market cycle” over the past few years, it was a complete breakdown of true market fundamentals (what market cycles are created from)
Dan C says:

May 22, 2008 at 8:12 pm

Also, you cannot measure the past few years to ANY cycle that has ever occurred in history. This kind of rampant credit expansion and speculation will never happen again…ever. Banks are much smarter than that. We will never reach the pricing and demand levels we have known in recent past.

This was not a “market cycle” over the past few years, it was a complete breakdown of true market fundamentals (what market cycles are created from)
Chris says:

May 23, 2008 at 3:50 pm

Jim,

I take umbrage with the comment

“those who try the hardest to catch the bottom of any market, usually end up missing it. Why? Because you wont know where the bottom of any market is until its past”

As EconE mentions, the bottom is not v-shaped, and in fact, history has shown that real estate downturns start with rapid drops in price levels and then level off for few years before prices rise again. I would be much more concerned about catching a knife than missing the upturn.

That said, over the long-term I am hopeful for downtown Seattle’s market, with housing reaching a critical mass for services and rail connecting to UW and the airport. Hopefully, we ‘ll make the right choice for the waterfront.
Chris says:

May 23, 2008 at 7:50 am

Jim,

I take umbrage with the comment

“those who try the hardest to catch the bottom of any market, usually end up missing it. Why? Because you won’t know where the bottom of any market is until it’s past”

As EconE mentions, the bottom is not v-shaped, and in fact, history has shown that real estate downturns start with rapid drops in price levels and then level off for few years before prices rise again. I would be much more concerned about catching a knife than missing the upturn.

That said, over the long-term I am hopeful for downtown Seattle’s market, with housing reaching a critical mass for services and rail connecting to UW and the airport. Hopefully, we ‘ll make the right choice for the waterfront.
jo says:

May 23, 2008 at 5:12 pm

You guys need a hobby
jo says:

May 23, 2008 at 9:12 am

You guys need a hobby
AJ says:

May 23, 2008 at 6:49 pm

Jo – We have a hobby – posting here!

Anyone expecting fuel prices to stabilize should read yesterdays WSJ. Even the experts expect fuel to continue climbing. $12/gal has been mentioned. The economy is going nowhere until 2009.

Ironically fuel prices do help condo’s a little because people won’t commute at $12/gal.

Sell your SUV now!
AJ says:

May 23, 2008 at 10:49 am

Jo – We have a hobby – posting here!

Anyone expecting fuel prices to stabilize should read yesterdays WSJ. Even the experts expect fuel to continue climbing. $12/gal has been mentioned. The economy is going nowhere until 2009.

Ironically fuel prices do help condo’s a little because people won’t commute at $12/gal.

Sell your SUV now!
uptown says:

May 23, 2008 at 11:46 pm

Catching the bottom is relatively easy, I did it in CA in the 90s. You just wait until everybody say’s “real estate is a bad investment”, then you buy.
uptown says:

May 23, 2008 at 3:46 pm

Catching the bottom is relatively easy, I did it in CA in the 90s. You just wait until everybody say’s “real estate is a bad investment”, then you buy.
EconE says:

May 24, 2008 at 4:01 am

That bottom in CA in the 90’s lasted from approximately late 1994 (the initial downturn was a couple years before that) until 1997.

People are saying “real estate is a bad investment” because currently…if you run the numbers…it is. Give it a few years however.
EconE says:

May 23, 2008 at 8:01 pm

That bottom in CA in the 90’s lasted from approximately late 1994 (the initial downturn was a couple years before that) until 1997.

People are saying “real estate is a bad investment” because currently…if you run the numbers…it is. Give it a few years however.

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