Tuesday, January 31, 2006

Studies Find Condo 'Glut' In DC Area: WP

The Washington Post reports on the oversupply of condos. "The Washington area housing market has softened but is still in relatively decent shape except for what appears to be a glut of condos. Kenneth Wenhold predicted in an interview that so many condos are under construction or planned, particularly in Arlington and Fairfax counties, that 'there is a very significant problem' of overbuilding and the potential for projects to go bust." "Arlington and Fairfax have 14,156 units under construction and almost 28,000 planned or proposed, Wenhold said. 'But in the same area, last year we only sold 4,001 condos.' In 14 counties in Maryland, including those around the District and Baltimore, Wenhold said, 3,901 condo units are under construction." "Cities with the greatest risk of a hard landing, those with a lot of condo production and conversion, high levels of speculator activity and modest levels of job growth, are Las Vegas, Miami and Phoenix." "MetroStudy's fourth-quarter analysis of the area said listings of all types of housing for sale have doubled since July and new-home inventory for sale has jumped from 6.6 months of supply to 12.2 months. But much of that jump is due to the flood of condos. 'If you remove the thousands of condominium units that are being built in Arlington County, Va., housing inventories drop to a much more reasonable 7.6 month supply.'"
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10 comments:

  1. Ben Jones1/31/2006 06:28:00 AM

    Thanks to the readers who sent this in. Notice the builders failed to make an accurate assessment of what the market could bear; IMO they jumped the gun on other markets as well.

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  2. Silver Lightning1/31/2006 06:31:00 AM

    Wages Up by Smallest Amount in Nine Years

    But I guess it's different this time and housing is immune to shrinking incomes.

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  3. David1/31/2006 06:56:00 AM

    I agree that the most bubblicious part of the Washington, DC metro area housing market is the glut of condos.

    See Lockbox Glut

    David
    Bubble Meter Blog

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  4. Eric1/31/2006 07:25:00 AM

    Saw this this morning also.

    I SOLD a condo in Colonial Village at Courthouse Metro back in June. A 1 BDRM 600 SQFT existing would go for $320,000. Nice unit in nice area. 5 minute walk to metro. With offstreet parking. I don't see how anyone is going to afford anything more when you can rent the SAME unit for $1,200 a month.

    I follow the DC (including NVA and MD) Condo market very closely. Here are the numbers from a building I also owned in in DC (for those interested this was in Glover Park):

    1 bdrm Condo prices:

    1990 $100,000 (top?)
    1995 $60,000 (Notice the 40% cut)
    1998 $65,000
    2000 $100,000 (TEN years recover)
    2002 $200,000 (WOW!)
    2005 $300,000 (WOW! Again!)
    2006 ????

    Assuming that the prices had a more realistic appreciation of 5% per year (still historically HIGH). And we took the $100,000 price from 1990 (At the peak of the past bubble. Some actually paid more then that.) and applied 5% appreciation per year (notice this is compounded) the condo would "only" be worth:

    $218,000

    If we take the 1995 number and do the same math it is worth:

    $102,000

    If we take the 2000 number:

    $134,000

    So, we don't know what this place really should be worth, but it is less then $300,000! (Also, I used 5%. In a recent article in the WashPost by 2 real estate investment professionals they said that the long term appreciation rate in DC is 3.6%!!!) I won't even do the math on that!

    Thanks for the great blog Ben. Eric in DC looking for a 50% reduction in 1 bedroom condo prices over the next 2 years.

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  5. Tom Gullo1/31/2006 08:05:00 AM

    What about builders that build near metro areas and emloy smart growth practices? They will help make the area affordable. And I'm sure they will make a nice profit, even if prices come down.

    It's the flippers looking for a fast buck that have played a larger role in creatong the balloon?

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  6. Tom Gullo1/31/2006 08:20:00 AM

    DC_Too said... Arlington - Employing "smart growth" practices may make us feel warm and fuzzy, but it has nothing to do with housing prices. There is clearly a huge glut looming. Smart or unSmart, prices will come down, significantly.

    I agree with all of that. I just found it interesting that I have some sympathy for the builders. They are taking risks with THEIR money and building things. Flippers are a different breed.

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  7. Tom Gullo1/31/2006 08:32:00 AM

    ctz274 said... I've been following the market for a while. It seems that No. Va is the most troubled area around D.C. metro. So far, Maryland (especially Montgemory County) seems to be OK without much rise in the inventory and price is still sustained at the high level. Any reasons?

    dcbroker said.. DC Proper is different
    Loudoun Va said.. Loudon is different
    ctz274 said.. Maryland is different.

    Really?

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  8. Tom Gullo1/31/2006 09:37:00 AM

    ctz274 said... arlingtonva-
    Of course I know there will be no difference eventually. I'm just seeking insightful answers from people who know D.C. metro well since I'm new to the area.

    The mls database I am pulling data from is showing a 400%+ increase in inventory compared to this time last year. But prices aren't moving down much.

    My guess is sellers have calculated how much money they have made before they have even sold their properties.

    It appears it will take months of interest$$, taxes$$, maintenance$$ etc. before they decide to lower prices.

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  9. Eric1/31/2006 11:01:00 AM

    Prices in N. Virginia 5 or 6 years ago were LOWER then Montgomery County, MD. Prices in NVA 6 months to 1 year ago were (and are) higher then Montgomery County.
    My guess is this is a result of travel time. I think that in the last 10 years the commute time to DC from NVA (Fairfax, Arlington, Alexandria) has not increased as much as from Montgomery. Example: To get downtown from Kensington, MD takes about 45 minutes at rush hour, but from West Falls Church it is about 30 minutes. Similiar schools. Used to be about the same commute 10 years ago. In NoVA you have interstates (I66, I95/I395) and more major roads (Rt50, GW Parkway, Lee Highway, others) coming into DC. In MD you have to come down Connecticut Ave, Georgia Ave, Wisconsin Ave, Canal Rd, Beach Dr, Reno Rd, River Rd. or beltway (into VA) to GW Parkway.
    Notice the difference between Avenues and Highways. (The metro system is about the same between these areas.)

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  10. sf jack1/31/2006 01:15:00 PM

    DC condos for everyone!

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