Tuesday, March 27, 2007

Greater Seattle metro housing market-condos

thehousingbubbleblog.com is a good source of compilations of reports from the mainstream media. This quote from the News Tribune gives food for thought:

“Downtown Tacoma’s condominiums have helped to transform a once-troubled downtown where few previously wanted to live. Today, a patchwork of exposed steel, scaffolding and cranes showcases a decade of marketing, recruiting developers and trying to convince buyers of the area’s merits.”

Dozens of condo buildings have gone up or been renovated in the city’s downtown core. As of December, all six neighborhoods surveyed averaged 14 months of condominium inventory, which measures how long it would take to sell everything built and approved.”

“Buyers enjoy some advantage and prices don’t appreciate as quickly, said Deanna Sihon, the study’s author. Tacoma also is subject to a hesitation common in areas remaking themselves and having to overcome long-held perceptions, Sihon said.”

“‘People are being careful and almost waiting to see, gosh, is this renovation and this new place really happening?’ she said. ‘It is in Tacoma.’”

“‘I think everyone would like the strongest sales possible. You’d like to see them fly off the shelf, and they’re not doing that right now,’ said consultant J.J. McCament.”

“Since 2004, nearly 400 condos have been sold downtown with another 525 for sale and about 1,500 proposed.”

“A year ago, a hot market meant condo shoppers had to make rapid buying decisions, said real estate agent George Pilant. Not so now. ‘Buyers have so many choices they don’t feel a sense of urgency,’ he said.”

“But condos are a niche product that at higher inventory levels, he said, raise this question: Will good-paying jobs needed to sell such downtown housing continue to be created? ‘I suppose that’s where the gamble is,’ said Paul Turek, an economist with the state Employment Security Department. ‘In the Tacoma area, we have some high-paying jobs. Whether there’s enough to support the building of the condos remains to be seen.’”

I highlighted in bold some points that seem especially noteworthy. First of all is the fact that a number of neighborhoods have 14 months of condo inventory at current sales levels. That should mean decreasing prices if the builders' business plan called for selling each condo within a couple of months of completion, which I think is a fair assumption. Does a sale at a lower price than planned for (which means a lower rate of return on the investment) yield a better outcome than eating the carrying costs for the finished units for 14 months or longer?

Next, the article commented that downtown Tacoma hasn't been considered a residential area in the past. I don't think that factor should be a major roadblock longterm. Tacoma has similar geography to Seattle in that it is on the Sound, mountains are nearby, and the city is within reasonable distances of much of the rest of the metro area. I think that the status issue is a key, as the article quote seems to imply. If the early adopters(buyers) make the emotional investment in the downtown area, I think that would mitigate concerns from potential buyers and jump start the in-migration to the urban core.

With respect to the issue of high paying jobs, I would guess that a commute from Tacoma to Redmond couldn't be much worse than a commute from Belltown to Redmond.

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