Condo Crash Coming

In a few markets where developers have been incautiously building more condominium units than can possibly be absorbed at once — including Miami, Palm Beach and Fort Lauderdale in South Florida with 25,888 apartments under construction and Chicago, where 15,013 units have been started, according to Torto Wheaton Research/Dodge Pipeline — industry watchers are expecting prices to collapse. In those markets, where experts believe that 70% of the new condominiums are being purchased by investors, prices could drop by 30% between 2006 and 2007. By contrast, about 9,600 condominiums are being built or converted in the Washington, D.C. metropolitan area, and experts think that they can be absorbed, particularly because they cost less than single-family homes and are an attractive alternative to prospective buyers who can’t afford a house. Some 7,000 condominiums were sold in Washington during the first half of this year. Since 2001, condominium sales have increased almost 50%, according to Condo-Mania!, a report by Wachovia Securities. But the volume is still relatively small, with $13.2 billion in sales during the first quarter of this year, compared to $300 billion in single-family sales during that time. (www.housingfinance.com)
Apartment Finance Today (Nov.-Dec. 2005); Bendix Anderson

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Help Wanted; So Is Housing

Making it difficult to resurrect the economy of New Orleans, three months after it was ravaged by Hurricane Katrina nearly 75% of the city’s housing stock is uninhabitable, and rents for the remaining residences are skyrocketing as thousands of people return for recovery work. In the Mid-City neighborhood, two-bedroom duplexes once renting for $900 a month can now fetch as much as $2,000. Throughout the city, ad hoc neighborhoods hosting residents and FEMA workers have sprouted up in unlikely places, including government-issued trailers in vast hardware store parking lots. Others have created homesteads in city parks, living in tents. The city has announced that it will start charging the campers. When the city does eventually recover, it is expected to be smaller, down to half its pre-storm population of 450,000. About 150,000 are within the city limits during the day, but each evening about half of them leave. (www.rismedia.com)
RisMedia (11/29/05); Beth Bresnahan

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Saying Yes to Housing

Aimed at making the state economically more competitive by doing something about the high cost of housing, legislation signed into law by Massachusetts Governor Mitt Romney, 40S, goes to the heart of the reason communities most often cite for turning down new residential construction. The law provides state funding to make up the difference between what communities collect in property taxes from new homes and the cost of educating the children who move into them. That tab is projected to total about $35 million annually. The law complements legislation passed a year ago that pays communities to approve housing near transit stops and town centers. The state’s zoning law also allows developers to circumvent communities where less than 10% of the housing stock is not affordable. No state in the country has seen greater home price appreciation in the past 25 years. “Massachusetts right now is committing slow suicide by its lack of receptivity to young families and children,” says Paul Grogan, president of the Boston Foundation. (www.boston.com)
Boston Globe (11/23/05); Steve Bailey

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Moving In and Moving On; Washington Area Is a ‘Funnel’

Migration into the Washington, D.C. market is being driven by the region’s very strong job market, which is the best in the country, according to Mark Zandi, founder and chief economist of Economy.com. But even though the movers tend to be “from other, very high-house-priced areas such as California and New York,” a large number of them have been exiting to areas around Baltimore and Hagerstown in Maryland and Richmond and Winchester in Virginia because the area’s housing prices have jumped so much in the past six years. Zandi said that the same kind of migratory pattern — from high-cost city to lower-cost city and then to even lower-cost suburb — is occurring among the nation’s most expensive markets. In coastal California, he said, the population had been relocating for several years to nearby states, but more recently statistics from the IRS show net out-migration to Inland California, which was previously farmland. Another aspect of the Washington area’s out-migration trend, according to demographer William Frey, is the “cashing out” of young retirees, many of them baby boomers, “who are leaving for more affordable places in Florida, the Southeast and even the West. So in a way metro D.C. is like a funnel — with new high-end and high-skilled workers splashing in at one end, and a ‘middle-class’ flight of younger families and retirees draining out the other.” (www.washingtonpost.com)
Washington Post (11/26/05); Sandra Fleishman

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Lenders Push the Envelope to Get More Business Amid Higher Interest Rates

To make up for a gradual increase in interest rates and a slowly cooling housing market, mortgage lenders are turning to alternative payment products that are designed to lower monthly payments to help borrowers qualify more readily, according to Keith Gumbinger of HSH Associates, which tracks the mortgage banking industry. One of these new mortgages allows borrowers to pay only interest for a certain period, lowering their monthly payments so that they can take on larger loans. Other loans require little in the way of documentation during the approval process; these low-document loans are often marketed to consumers who have their own businesses and can verify their assets but have incomes that do not fit the traditional mode used to assess a borrower’s ability to make monthly loan payments. Although these low- or no-doc loans can become problematic to less creditworthy consumers, Art Frank, head of mortgage research at Nomura Securities International, Inc., expects to see them continuing to grow rapidly. Lenders expect to process $2.26 trillion worth of home loans next year, down from $2.78 trillion this year, according to the Mortgage Bankers Association. Much of the drop will come from a slowdown in refinancing. (www.seattlepi.newsource.com)
Seattle Post-Intelligencer (11/23/05); Aleksandrs Rozens, Associated Press

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Home Builders Finding New Focus

The urban infiltration of national home builders such as Pulte Homes, Centex and Toll Brothers, who have been staples of modern suburbia, has been a trend across the country for some time. Michigan-based Crosswinds Communities has plans for four mixed-use condominium towers in Jacksonville, Fla., the city’s first skyrise development by a national builder. Last month, Los Angeles-based home builder KB Home announced that it will create a high-density and mixed-use division called KB Urban, which at the outset will focus on cities with strong downtown cores. In part, the companies are responding to changing demographics. According to the National Association of Realtors, the share of home buyers who are married has been trending down since 1995. Single home buyers now make up 26% of the home buying market, according to one of the association’s recent surveys. And 57% of home buyers do not have children residing in their household. (www.jacksonville.com)
Florida Times-Union, Jacksonville (11/24/05); Joe Light

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