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Condos are in demand but…

By Matt Goyer May 23, 2007

Carbon 56, Queen Anne High School, The Decatur, The Press, Tobira

If condos are really in demand why all the incentives? From this Sunday’s Seattle Times.

Carbon 56: $5,600 buyer bonus

Decatur: $4,000 buyer bonus

Press: No HOA dues for 2 years

Queen Anne High: $10,000 buyer bonus on all homes

Tobira: $4,000 buyer bonus

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44 responses to “Condos are in demand but…”

brian says:

May 23, 2007 at 2:27 pm

“Buyer bonus” is a joke… especially when you go to do your signing and they have pages disclosing the business relationship between the developer and the preferred lender.
brian says:

May 23, 2007 at 6:27 am

“Buyer bonus” is a joke… especially when you go to do your signing and they have pages disclosing the business relationship between the developer and the preferred lender.
Jason says:

May 23, 2007 at 3:35 pm

$10,000? I can pocket that just by staying in my apartment and depositing the difference between rent and P+I into a savings account for a year.
Jason says:

May 23, 2007 at 7:35 am

$10,000? I can pocket that just by staying in my apartment and depositing the difference between rent and P+I into a savings account for a year.
chris says:

May 23, 2007 at 3:59 pm

I can’t think of a single good reason for someone in the entry level/first time buyer segment to purchase a condo right now. Different story at the high end, where the decisions is more wants based and less needs based. Rents are just too much of discount relative to prices. Most people with means to buy (eg a heartbeat and ability to call a mortgage broker) already have, or have decided to wait out the cycle.
chris says:

May 23, 2007 at 7:59 am

I can’t think of a single good reason for someone in the entry level/first time buyer segment to purchase a condo right now. Different story at the high end, where the decisions is more wants based and less needs based. Rents are just too much of discount relative to prices. Most people with means to buy (eg a heartbeat and ability to call a mortgage broker) already have, or have decided to wait out the cycle.
Justin says:

May 23, 2007 at 4:15 pm

I’m no Whale Biologist, but it’s my opinion that what we are seeing is high demand for “Good” units, and people not willing to compromise for “Ok” units, given the price the market has risen to (and the price of rent). I suppose this is the norm in RE, but it appears to be exaggerated right now.
Justin says:

May 23, 2007 at 8:15 am

I’m no Whale Biologist, but it’s my opinion that what we are seeing is high demand for “Good” units, and people not willing to compromise for “Ok” units, given the price the market has risen to (and the price of rent). I suppose this is the norm in RE, but it appears to be exaggerated right now.
Dan says:

May 23, 2007 at 6:58 pm

I think Justin nailed it – the frenzy of “buy anything you can get” is over, and people want to get some value for their money. There’s still plenty of demand for the nice buildings (both existing and new construction), but the bland stuff is going to either sit or axe the price to compete.
Dan says:

May 23, 2007 at 10:58 am

I think Justin nailed it – the frenzy of “buy anything you can get” is over, and people want to get some value for their money. There’s still plenty of demand for the nice buildings (both existing and new construction), but the bland stuff is going to either sit or axe the price to compete.
EconE says:

May 23, 2007 at 8:36 pm

Incentives are the way that the reported median prices are kept artificially inflated. The total price (including the cash kickbacks) is what is reported as the sales price. Just a way to manipulate the statistics…that’s all.

How would I handle incentives? I would just tell the builder to keep it. and subtract the “incentive” from the price and then consider that the “asking price”. That is the figure that I would work with when considering what lowball offer I would give.

If the builder/marketer/whoever tried to “sell” me on the incentives I would have a hearty laugh wish the sales rep luck.

Speaking of statistics…be aware that many reports that have come out as of late have conveniently switched from reporting YoY (year over year) statistics to MoM (month over month) statistics.
EconE says:

May 23, 2007 at 12:36 pm

Incentives are the way that the reported median prices are kept artificially inflated. The total price (including the cash kickbacks) is what is reported as the sales price. Just a way to manipulate the statistics…that’s all.

How would I handle incentives? I would just tell the builder to keep it. and subtract the “incentive” from the price and then consider that the “asking price”. That is the figure that I would work with when considering what lowball offer I would give.

If the builder/marketer/whoever tried to “sell” me on the incentives I would have a hearty laugh wish the sales rep luck.

Speaking of statistics…be aware that many reports that have come out as of late have conveniently switched from reporting YoY (year over year) statistics to MoM (month over month) statistics.
Dan C says:

May 23, 2007 at 9:29 pm

EconeE,

All very good points, glad you posted that.
If I read one more rosy story from Elizabeth Rhodes at the Times or from the NAR I am going to go nuts.
The “evidence” that they use in these articles is merely falsified or re-worked statistics to make the market sound good.
LI don’t see how a 46% increase in inventory YTD is a good sign, nor a drop of of 27% (or so) in prices. Does anyone have a graph/idea of how many condos Seattle has absorbed year-on-year over the past decade? Bet you the average is less than 1500
Dan C says:

May 23, 2007 at 1:29 pm

EconeE,

All very good points, glad you posted that.
If I read one more rosy story from Elizabeth Rhodes at the Times or from the NAR I am going to go nuts.
The “evidence” that they use in these articles is merely falsified or re-worked statistics to make the market sound good.
LI don’t see how a 46% increase in inventory YTD is a good sign, nor a drop of of 27% (or so) in prices. Does anyone have a graph/idea of how many condos Seattle has absorbed year-on-year over the past decade? Bet you the average is less than 1500
jo says:

May 23, 2007 at 10:31 pm

A drop of 27% in prices? Huh?
jo says:

May 23, 2007 at 2:31 pm

A drop of 27% in prices? Huh?
Dan C says:

May 23, 2007 at 10:33 pm

Excuse me…that should have been 7%.

I saw that on NWMLS last month. Figure taken from Single family home and Condos, King County statistical area.
Dan C says:

May 23, 2007 at 2:33 pm

Excuse me…that should have been 7%.

I saw that on NWMLS last month. Figure taken from Single family home and Condos, King County statistical area.
Dan C says:

May 23, 2007 at 10:37 pm

April 2007: From NWMLS
Active Listings: up 38% YOY
Pending Sales: down 10% YOY

I meant pending sales.
Dan C says:

May 23, 2007 at 2:37 pm

April 2007: From NWMLS
Active Listings: up 38% YOY
Pending Sales: down 10% YOY

I meant pending sales.
jo says:

May 23, 2007 at 10:54 pm

The irony, calling out others about their “evidence” being incorrect when yours isn’t correct either.

Incentives are an artifical way to keep median prices high?. I’m sure that’s the deal. All the sellers are in cohouts to “manipulate the statistics”. It’s really a big elaborate thing going on and the developers/sellers have had this entire thing planned out ever since the initial offering off the product.

Queen Anne High School offering 10k incentives right now has nothing to do with them trying to sell more units or attract attention. It’s really them trying to “manipulate the statistics” to make the median home price higher in King County. Makes total sense.
jo says:

May 23, 2007 at 2:54 pm

The irony, calling out others about their “evidence” being incorrect when yours isn’t correct either.

Incentives are an artifical way to keep median prices high?. I’m sure that’s the deal. All the sellers are in cohouts to “manipulate the statistics”. It’s really a big elaborate thing going on and the developers/sellers have had this entire thing planned out ever since the initial offering off the product.

Queen Anne High School offering 10k incentives right now has nothing to do with them trying to sell more units or attract attention. It’s really them trying to “manipulate the statistics” to make the median home price higher in King County. Makes total sense.
Dan C says:

May 23, 2007 at 11:02 pm

I didn’t post my evidence, that is the NWMLS, the quoted source of all newspapers, developers, reporters and people who write on blogs.
I did not say that incentives were keeping median prices high. As EconE posted, many writers and developers are quoting figures on a month-to-month basis rather than year-to-year in order to skew the median and mean of the statistics to a higher point. Simple high school Statistics 101. An increase in buyer incentives, in my opinion, is a sign of desperation. If things were so good, and condos were flying off the inventory, then there would be less incentives…no?

Would you say that an inventory increase in an “inelastic” product such as housing, coupled with a decrease in “elastic” consumer demand is a postive thing for the housing industry?

No need to be combative, I wasn’t trying to be.
Dan C says:

May 23, 2007 at 3:02 pm

I didn’t post my evidence, that is the NWMLS, the quoted source of all newspapers, developers, reporters and people who write on blogs.
I did not say that incentives were keeping median prices high. As EconE posted, many writers and developers are quoting figures on a month-to-month basis rather than year-to-year in order to skew the median and mean of the statistics to a higher point. Simple high school Statistics 101. An increase in buyer incentives, in my opinion, is a sign of desperation. If things were so good, and condos were flying off the inventory, then there would be less incentives…no?

Would you say that an inventory increase in an “inelastic” product such as housing, coupled with a decrease in “elastic” consumer demand is a postive thing for the housing industry?

No need to be combative, I wasn’t trying to be.
EconE says:

May 23, 2007 at 11:43 pm

Facts are facts Jo. I follow the numbers closely enough…I even see when the condocompare.com has a “sold” price that is listed higher than the final MLS listing price. Would you care to explain that to me? Which price do you think the NAR will use for their reporting? And no…I highly doubt there was a bidding war on a cookie cutter condo at a complex where dozens and dozens of options are available.

Incentives are offered by not only the builders…smart homeowners are catching on also it’s not about being in Cahoots. But the NAR median price figures only show the price and don’t state that the price included the incentives.

Thanks for trying to discredit me though.

Enjoy your o8 condo!
EconE says:

May 23, 2007 at 3:43 pm

Facts are facts Jo. I follow the numbers closely enough…I even see when the condocompare.com has a “sold” price that is listed higher than the final MLS listing price. Would you care to explain that to me? Which price do you think the NAR will use for their reporting? And no…I highly doubt there was a bidding war on a cookie cutter condo at a complex where dozens and dozens of options are available.

Incentives are offered by not only the builders…smart homeowners are catching on also it’s not about being in Cahoots. But the NAR median price figures only show the price and don’t state that the price included the incentives.

Thanks for trying to discredit me though.

Enjoy your o8 condo!
JDP says:

May 24, 2007 at 12:57 am

The market in Seattle is somewhat seasonal, the summer is pretty dead as residents take advantage of that rare day above 70 degrees. That is why the month to month is more interesting and especially the May 06 compared to May 07. Gee, some buyers also need some help with closing costs,so yes, a developer always wants to protect their sales price I really did not think it was anything as evil as trying to keep the median price high.
JDP says:

May 23, 2007 at 4:57 pm

The market in Seattle is somewhat seasonal, the summer is pretty dead as residents take advantage of that rare day above 70 degrees. That is why the month to month is more interesting and especially the May 06 compared to May 07. Gee, some buyers also need some help with closing costs,so yes, a developer always wants to protect their sales price I really did not think it was anything as evil as trying to keep the median price high.
jo says:

May 24, 2007 at 5:44 am

Prices higher on the closing price than the listing price mainly happens because people roll closing costs into the purchase price. Duh. This has been happening for years and years.

There’s your explanation.

Enjoy mom and dad’s basement!
jo says:

May 23, 2007 at 9:44 pm

Prices higher on the closing price than the listing price mainly happens because people roll closing costs into the purchase price. Duh. This has been happening for years and years.

There’s your explanation.

Enjoy mom and dad’s basement!
EconE says:

May 24, 2007 at 7:20 am

No need for me to stay in the basement Jo.

Mom is dead. I moved home to keep Dad company. Dad & I share @5300 sf. And that doesn’t include the guest house.

Enjoy debt! and maybe bankruptcy?
EconE says:

May 23, 2007 at 11:20 pm

No need for me to stay in the basement Jo.

Mom is dead. I moved home to keep Dad company. Dad & I share @5300 sf. And that doesn’t include the guest house.

Enjoy debt! and maybe bankruptcy?
Dan C says:

May 24, 2007 at 2:51 pm

Wow, how quickly a good conversation goes sour…I don’t think this is something worth fighting about.

What is the incentive for oil prices to be high? Wheat prices to stabilize? Gold prices rising? REAL ESTATE PRICES STAYING HIGH?
SO PEOPLE CAN MAKE MONEY!

If I were a practicing agent, which I am no longer, I would want to keep prices high, so that I can collect a fatter commission. If I were a builder, I would want prices to stay high so I could recover construction costs and make profit. If I were a condo marketer, I would want closing prices to remain high, so I collected a fatter fee.

These people are not malicious, evil, or in planning against us. This is simple business.

All I am saying is: Do not trust the MLS or the Papers when you go looking at a house. They use skewed statistics to make the story sound better.
Do your own research, drive the neighborhood, talk to other buyers. Anyone driven through Issaquah/Redmond/Suburban Bellevue lately? I think the ground might be dying from all the “for sale” signs out there…THAT is your indicator of market conditions.
Dan C says:

May 24, 2007 at 6:51 am

Wow, how quickly a good conversation goes sour…I don’t think this is something worth fighting about.

What is the incentive for oil prices to be high? Wheat prices to stabilize? Gold prices rising? REAL ESTATE PRICES STAYING HIGH?
SO PEOPLE CAN MAKE MONEY!

If I were a practicing agent, which I am no longer, I would want to keep prices high, so that I can collect a fatter commission. If I were a builder, I would want prices to stay high so I could recover construction costs and make profit. If I were a condo marketer, I would want closing prices to remain high, so I collected a fatter fee.

These people are not malicious, evil, or in planning against us. This is simple business.

All I am saying is: Do not trust the MLS or the Papers when you go looking at a house. They use skewed statistics to make the story sound better.
Do your own research, drive the neighborhood, talk to other buyers. Anyone driven through Issaquah/Redmond/Suburban Bellevue lately? I think the ground might be dying from all the “for sale” signs out there…THAT is your indicator of market conditions.
mhays says:

May 25, 2007 at 4:50 pm

I sure wouldn’t want to be a renter. I’ve been hearing projections like 20% higher rents in the next three years.

Rents aren’t high enough to justify lots of new rental construction yet, just projects in really ideal situations. With vacancies falling fast, this means rents will rise quickly until new construction is justified, and relieves the pressure.

Condo payments might still be higher than rents even after a couple years of rent increases. But the condo buyers will probably grow equity enough to overcome the difference. If you plan to stick around for a while, this is a fine time to buy.

(Disclosure — I work for a contractor. But we build rentals as well as condos, and I’m just speaking for myself anyway.)
mhays says:

May 25, 2007 at 8:50 am

I sure wouldn’t want to be a renter. I’ve been hearing projections like 20% higher rents in the next three years.

Rents aren’t high enough to justify lots of new rental construction yet, just projects in really ideal situations. With vacancies falling fast, this means rents will rise quickly until new construction is justified, and relieves the pressure.

Condo payments might still be higher than rents even after a couple years of rent increases. But the condo buyers will probably grow equity enough to overcome the difference. If you plan to stick around for a while, this is a fine time to buy.

(Disclosure — I work for a contractor. But we build rentals as well as condos, and I’m just speaking for myself anyway.)
jo says:

May 25, 2007 at 6:04 pm

Rents are lower than a mortgage, duh, but not by as much as everyone is making it out to be. None of this “a mortgage is more than 2x what it costs to rent”.

I just bought a place, 5% down, 7/1 ARM, 80/15. With HOD’s, taxes, mortgage and HELCOC…total payments come to $2550.

If I rented it out I could get $1500 for it. That means I am paying $1050 more than I would be paying if I was renting.

Take that $1050.

-$250 goes toward principle
-$300 comes back to me as a tax credit
-$300 comes back to me as a tax refund

Add up those numbers ($850), subtract it from the $1050, and I end up paying $200 more than if I was renting. Paying $200 a month to gain 3% yearly appreciation on 350k (the value of the condo) sounds like a good deal to me. :)

Granted there are a ton of variables which I will undoubtedly be called out on (3% appreciation? Rental price, you could be getting interest on the 5% you put down, bla bla bla). But for me it works. I was smart about what I bought, where I bought it, and the price I paid. I lowered my risk as much as possible.

You don’t take risks, you never come out ahead. Have fun in middle management the rest of your lives. ;)
jo says:

May 25, 2007 at 10:04 am

Rents are lower than a mortgage, duh, but not by as much as everyone is making it out to be. None of this “a mortgage is more than 2x what it costs to rent”.

I just bought a place, 5% down, 7/1 ARM, 80/15. With HOD’s, taxes, mortgage and HELCOC…total payments come to $2550.

If I rented it out I could get $1500 for it. That means I am paying $1050 more than I would be paying if I was renting.

Take that $1050.

-$250 goes toward principle
-$300 comes back to me as a tax credit
-$300 comes back to me as a tax refund

Add up those numbers ($850), subtract it from the $1050, and I end up paying $200 more than if I was renting. Paying $200 a month to gain 3% yearly appreciation on 350k (the value of the condo) sounds like a good deal to me. :)

Granted there are a ton of variables which I will undoubtedly be called out on (3% appreciation? Rental price, you could be getting interest on the 5% you put down, bla bla bla). But for me it works. I was smart about what I bought, where I bought it, and the price I paid. I lowered my risk as much as possible.

You don’t take risks, you never come out ahead. Have fun in middle management the rest of your lives. ;)
EconE says:

May 25, 2007 at 8:32 pm

Jo…everybody has a different situation. Why do you always feel the need for the personal attacks? And no…I’m not in middle management..I actually don’t need to work…at all. I’m not in my mid 20’s. I’m not bitter.

but I do get a good laugh out of your posts.
EconE says:

May 25, 2007 at 12:32 pm

Jo…everybody has a different situation. Why do you always feel the need for the personal attacks? And no…I’m not in middle management..I actually don’t need to work…at all. I’m not in my mid 20’s. I’m not bitter.

but I do get a good laugh out of your posts.
Dan C says:

May 25, 2007 at 9:05 pm

mhays,

Thanks for the input. As a contractor, have you heard from any developers who intend to start construction of apartments now, to try and catch the wave?

From what I have heard, pending condo permits outdo apartments on a 3 to 1 basis. If I were a developer, I would be changing my plans to apartments right now!
Dan C says:

May 25, 2007 at 1:05 pm

mhays,

Thanks for the input. As a contractor, have you heard from any developers who intend to start construction of apartments now, to try and catch the wave?

From what I have heard, pending condo permits outdo apartments on a 3 to 1 basis. If I were a developer, I would be changing my plans to apartments right now!
richard says:

May 26, 2007 at 12:14 am

I really did not think it was anything as evil as trying to keep the median price high.

Appraisal values are all about comparable sales, so anything that helps boost sale price will boost comps and everyone selling (or refinancing) a home has a interest in getting a high appraisal if they are taking out a loan.

Some states even have laws preventing builders from buying people out of their old home and selling it at a loss. Now you have to wonder what the reason is that a builder would do that rather than just selling the new home at a lower price – and why it had to be outlawed.
richard says:

May 25, 2007 at 4:14 pm

I really did not think it was anything as evil as trying to keep the median price high.

Appraisal values are all about comparable sales, so anything that helps boost sale price will boost comps and everyone selling (or refinancing) a home has a interest in getting a high appraisal if they are taking out a loan.

Some states even have laws preventing builders from buying people out of their old home and selling it at a loss. Now you have to wonder what the reason is that a builder would do that rather than just selling the new home at a lower price – and why it had to be outlawed.

Condos are in demand but…

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