A Condo Slowdown, But Only That

Yesterday Ryan Frank and Jeff Manning's front-page Oregonian feature made a strong case that things have changed significantly in Portland with respect to condo demand. Reservations made at even the most popular condos, from the John Ross in South Waterfront to The Civic between downtown and Northwest, have seen many a cancellation of pre-completion renovations. Other projects have switched to luxury apartments, which I think is a limited market. Projects under construction have far less certain futures in terms of occupancy, and ones in the planning stages are on hold.

At the same time, we all know that such data is relative, and that economics (of which real estate is a part) also always have their ebbs and flows. I see Portland's condo slow-down as just that: a period in which the unprecedented growth and spread of condos perhaps ends its most manic period, but because of numerous factors ultimately continues to go forward. I'm pretty-much convinced that within a year or so, the cranes will be moving more quickly again.

Last week I happened to have lunch with Ryan and Jeff, my Oregonian colleagues, when their story was in the finishing stages. We happened to run into a prominent condo developer and talked with him for quite a while as we polished off the last of our cheeseburgers (or salad in Ryan's case). The developer said he thinks the real estate picture for condo projects will become much more positive by next summer. Do the rest of you think this is a temporary slow-down, or something more? The headline of the article was, "Shadow falls on condo market". It makes me think of shadows cast by the regular cycles of the sun, which will always return after darkness temporarily falls.

One other thing I do wonder about the condo slowdown, though. Nobody wants to see architects or builders (and subs) get fewer commissions. But in some way, might a bit of a slowdown in the condo boom be good for Portland? After all, cities traditionally develop at paces much slower than what we've seen in the Pearl District and South Waterfront. In the northern Pearl, for example, developer Hoyt Street Properties has for years struggled to get the city to re-zone to allow taller, skinnier buildings. But planning isn't a gangbuster-pace activity, nor should it be. Is it possible that slowing the condo pace just a bit gives the city more time to do it better?

Besides, if condos are slowing down, the office market finally seems to becoming out of slumber. The Pearl and SoWa could both use more offices to integrate in those neighborhoods with the residential buildings, bringing in a weekday presence and vitality that complements the mostly evening/weekend presence of people in condos and apartments.

Comments

[Mike]

One item briefly touched upon by the article is the variety of target audiences that the condo market has. I believe that the high end market is quite saturated at the moment, but towers like the Civic are likely to remain popular with owners looking for a more down to earth price tag.

The market for housing in general is a bit saturated at the moment, but when the mortgage fiasco settles down again and people realize how low the rates are, it is sure to improve. When that housing uptick happens, condos will probably rise with the rest of the market. The big question for me is, how long will the wait be, and will these new towers have to sit empty until that time comes? That could wound developers and scare them away from developing in that method in the near future.

Only time will tell.

[billb]

Perhaps this will move the condo developers into a mid-level product of high design 3-4 story Parisian scaled neighborhood buildings at price levels that are working class affordable. We need to get folks out of the suburbs in mass scale if we want to affect the environmental problem we have been making.

[george]

looks more like an oversupply problem then anything else.

looking at the closed sales figures for condos, and they have enjoyed a nice slow steady growth that is slightly beating out linear growth from 02-present. yes, thats right, continued growth in closed sales, even to present.

however, from 05-present, there has been a huge inventory increase, making the new listings data look like exponential over the 02-present time frame.

in a nutshell i think thats the problem. an oversupply that will last a year or two.

looking back at this period many years in the future, i think the boom will leave an interesting stamp on our city. 20 years from now, i can imagine walking around portland and hitting a "2000's condo boom neighborhood". i wonder what we'll make of it...

[Matt Davis]

I hereby start the movement to reprice all downtown condos at $200k.

[Brian Libby]

I second that emotion.

[bearlee]

What young urban professional can afford a 250K mortgage without a 20% down payment especially when you figure in taxes and a hefty HOA. You are talking $2000/month. And that is just for 600 square feet?! My husband and I would love to move to the South Waterfront with our toddler. We would even live in the 800 square foot large studios that they call one bedrooms. At 300K plus a $280/month HOA fee plus $3K in taxes not to mention the increased costs of childcare in downtown PDX I am not sure who is affording these places unless you are putting more than 50% of your income into housing!

After that said...I think the condo market is going to crash big time. At one point the developers were saying that 50% of the buyers of the SoWa were out of staters buying 2nd homes. But when you view PortlandMaps.com I only noted 10 out-of-state addresses in the Meriwether and John Ross. The early buyers were speculators, most backed out and those who did not are having a hard time reselling or even renting...look at Craigslist rentals. And now the Atwater is about to open, then the 3720, plus the apartment building and this is just SoWa.

How long can the developers afford to sit on empty condos! Developers are auctioning off homes for 60-70cents on the dollar on some California cities...will it happen here?

I was not around for the 80s crash but have heard the horror stories. Though I do not wish this upon Portland again it would be nice to have affordable housing for us in the middle.

bearlee

[Aneeda]

And let's start seeing more usable roof gardens on these projects so those coming from the burbs can still break out the bbq or do a little nude sunbathing.

[Kitty]

All these posts seem to express a certain alienation and disdain for the present downtown new-housing supply. Whether or not the market really crashes these sentiments will remain and I think it will eventually be the undoing of many of the projects. So many people want quality, not luxury homes, But all deveoplers can see are concierge, granite counters and stainless everything. Why can't smart developers and smart designers see beyond amenities? There is a huge disaffected middle and hell, upper-middle class population who wants to make downtown their home.
(I'm not one)

[Leo]

Most other cities printed these types of articles about a year ago. More likely than not, Portland will follow the same path: About a year or so of increasing inventory and decreasing sales, followed later by substantial price drops (what is only beginning to happen in places like Miami and San Diego now).

When cities as different as Miami, San Diego, and Las Vegas all behave similarly, it is unlikely that Portland will escape a similar fate. After all, the primary factors that drove the boom (easy mortgages and the rampant speculation that followed) are fundamentally the same all over the nation. Yes, the mortgage market will settle down, but it will settle down at the historical level, the "safe" level. Lenders have rediscovered that it is a bad idea to lend to people with no money and little income, and they won't forget the lesson any time soon. The negligently lax lending standards of the past five years will not come back, and the condo market has to adjust to that reality.

"I'm pretty-much convinced that within a year or so, the cranes will be moving more quickly again."

I sure hope not. If developers do not respond to slowing demand by slowing construction, then the resulting massive oversupply will kill the market completely. Housing density itself does not create a vibrant city; you need actual population density. Building a bunch of half-empty condo buildings, and thus diluting population density, will undo much of what Portland has accomplished in the last ten years.

[Nick Carrier]

The Condo buildings have begun to slow down, its the single family home builders we should be worrying about. My God are they building like wildfire out in the burbs. It take two years to put up a condo tower, it takes a few days to clear cut trees and pop up a dozen wood frame houses.

[gerry]

I just KNEW I did the right thing by not buying a studio apartment for 250K last year!

[jimmy]

We need to limit food supply in the suburbs to curb growth there and people downtown. I do this with my guppies and it works well. Sure, I have to remove a few dead bodies now and then but...

[Richard]

I suppose more housing, whether condos or single-family homes, will get built over the coming decades in Portland, given likely population increase. But it seems that housing prices are bound to stablize or fall due to basic economic facts.

Is there any decent house or condo available in Portland now for less than $300,000? That seems like the low end, except for stuff that's very crummy, very small or very far from the city center. But making the monthly payments on a $300,000 30-year mortgage (plus taxes and isurance) requires an annual income of about $80,000, based on the "no more than a third of income for housing" guideline. So average household income in Portland--around $60,000 last time I checked--is considerably lower than the income needed to support payments on a low-end house or condo in the city.

The soaring housing prices in Portland over the past decade, and consequent tremendous incentive to build luxury condos, were fueled by factors that have now run their course: people moving here with their house profits from much more expensive housing markets, people spending more than they could afford to enter the housing market under the influence of low interest rates and subprime mortgages, and local homeowners trading up under the influence of those same seductive interest rates.

Continued price increases, however, will depend on those who don't already own homes here or elsewhere being able to enter the housing market for the first time. I just don't see how that can keep happening given stagnant middle-class incomes and national economic policy that works to keep those incomes stagnant.

Without the prospect of tremendous profits, are developers going to be eager to resume building highrise condos, which they invariably claim can only "pencil out" as high-end condos? I'd bet that the future of new housing construction in Portland lies in building stuff that the average first-time homebuyer can afford. I suspect that that kind of housing won't be deemed worthy of discussion in architectural circles.

[george]

the answer is YES. there are plenty of homes under $300k in good locations. as for matt's request for a $200k condo.. there are a lot of condo conversions out there at that price that are pretty nice. they are out on the east side though, which happens to be where the action is at anyway.

a statistic that is troubling is that using the median income to median price comparison, portland has become "unaffordable" in the last year or two.

[b0]

Actually Leo, you're wrong regarding the similarity between cities such as Miami, Vegas and San Diego. San Diego prices escallated at an extreme rate rendering home prices unaffordable to over 85% of the population. In Miami and Vegas and in SD as well, speculation counted for as much as 75% of the condos being built. In Portland the figure is less than 20%.

[Richard]

"there are plenty of homes under $300k in good locations"

I hope that's true but would be interested in whether others agree with you. I bought my place quite a long time ago and haven't been in the market since, so you may be more familiar with housing prices around the city than I am.

It's just that when I walk around what I thought was my modest SE neighborhood and see what I thought were modest 1800-square-foot bungalows (like mine) for sale for half a million dollars, I conclude that a $300,000 home is likely to have some pretty significant drawbacks.

In any case, I think we basically agree that middle-class wages haven't come close to keeping pace with housing prices in Portland in recent years, and that can't go on forever. And if the market for luxury condos is saturated, then the nature of homebuilding in Portland, in my view, is likely to change.

[Leo]

"In Miami and Vegas and in SD as well, speculation counted for as much as 75% of the condos being built. In Portland the figure is less than 20%."

How do you know?

People in Miami and Vegas didn't think that 75% of the condos were flippers at the time. It is obvious now, since all those units are on the market and not selling.

Just wait and see. One year from now, it will be obvious that the Portland number is MUCH higher than 20%.

[Greg]

I live in NoPo in St. Johns and the condo boom and apartment to condo conversion craziness has even infected this neighborhood. It may have slowed slightly in my neighborhood but it is far from stopping. Two years ago the city approved a new master plan for the St. Johns and Cathedral Park neighborhoods. Since then the place has blown up. Artists and small businesses are flocking to the old Columbia Sportswear headquarters building in Cathedral Park. People priced out of other neighborhoods are finding good buys and a budding community here.

Developed by Stearns Marnella Communities the Matthew Frank Condos added 111 condos to the St. Johns neighborhood on an old Safeway site (http://www.marnellahomes.com/frank.asp). Cathedral Park under the St. Johns Bridge has several large condo projects under construction. Two out of three phases of the Cathedral Park Condos are complete, adding several dozen housing units (http://www.cathedralparkinfo.com/). Cathedral Park Village Townhomes is a different, more upscale project of 8 four story townhomes. The starting prices are around $400,000. The project isn't quite done yet. A year ago the waiting list was 62 people deep but most of those people have disappeared as only 5 out of the 8 units have sold.

Developers in the neighborhood are not discouraged. di loreto ARCHITECTURE is working on two new mixed use developments on the main drag in St. Johns which combined will add roughly 30 – 50 condos and live/work units. The Louis York is breaking ground now and will add several dozen more condos to the St. Johns neighborhood, (http://www.thelouisyork.com/). The Cascade View Condos on the west end of the St. Johns Bridge at the foot of Forest Park is building another phase. There are dozen more condo and conversion projects in the neighborhood that are in the works or have recently been completed.

Sales for high-priced downtown condos may be lagging but the neighborhood condo market still seems to be chugging along.

[ws]

There's gold in them thar condo towers....and then there's not. Ah well, that's too bad. The race to make housing downtown exclusively available only for ever wealthier people, temporarily has stopped it seems. What a way to build a healthy city.

Maybe the answer, for all of those out there that can't seem to pull enough income together to buy a $2g or $3g or $4g house, is to get much poorer...much, much poorer. That would certainly help to make a stronger case for a better supply of low income housing downtown.

Nice dream! Back to building for money as opposed to fairness in housing affordability.

[john]

Aneeda says: "So many people want quality, not luxury homes, But all deveoplers can see are concierge, granite counters and stainless everything. Why can't smart developers and smart designers see beyond amenities? There is a huge disaffected middle and hell, upper-middle class population who wants to make downtown their home."

What you are missing is that those things are pretty cheap. Granite counters fabricated in China are as cheap as Formica and stainless appliance packages are only a few hundred more than white when bought in bulk. A Concierge makes the big projects work (who will sign for packages and keep people from stealing the lobby furnature?). A concierge might make $3000 per month split between 150 units that is only $20 each. To pay for the basic "quality" construction, prices have to be high and to get high prices those things have to be in the units or people will not spend the cash.

Cut all that "luxury" stuff and a $500,000 "luxury" condo with $400 per month HOA dues might cost $485,000 and have $350 per month dues. Are you ready to buy that stripped down "basic" unit?

[john]

Jimmy said:

"Is there any decent house or condo available in Portland now for less than $300,000? That seems like the low end, except for stuff that's very crummy, very small or very far from the city center."

Depends on your definition of close. Despite an earlier post, a 10 minute drive to St. Johns will afford dozens of nice condos and houses below $250K. (a 3br/2.5 bath 1650 sq ft condo at the Matthew Frank sells for around $250K). Dozens of new 1500 sq ft "skinny houses" are available for between $200-250K in N. Portland.

[john]

A quick check of www.coldwellbankerseal.com showes 4653 listings priced from $100-300K in a 10 mile radius of downtown.

[Lyle]

ALL RIGHT ... MARK THIS POST.
All of the above posts discuss issues that will be resolved when our planners and some developers make some simple changes ... you will see a major upswing in the condo market.

Problems ...
The market has slowed down.
The price of a condo is too high for middle income buyers.
The condos are for not geared to support families with children.
Portland will go the way of other cities and their condo markets.

Solutions ...
Planners will eventually figure out that they can provide real incentives (not like the token incentives that Portland applies now) for buildings with extra height and FAR (floor area ratio) bonuses. These incentives will result in large portions of condo structures that are more affordable (not all granite counters, stainless everything, etc.), and that are designed for families, etc.
There also needs to be requirements that neighborhood amenities (schools, parks,etc.) be built with developer funding as part of the right to build certain types and sizes of projects. (This works well in Canada and Europe, why not here?) This approach is slow to catch on with developers but once they see that it actually creates its own market, they love the idea. Check out Vancouver, BC in this regard.
ANYWAY, YOU HEARD IT HERE FIRST.

[john]

Until shell costs come down it doesn't matter what incentives are given. When building stops contractors will lower their bids but it might take a while.

[Robert]

There are 1300 sf row houses in Forrest Heights for around $250K. Not too crummy, not too small, not too far from the City, but it doesn't have the hipster vibe of NW, NE, or SE, and it feels more suburban.