Area Condo Sales Cooling After Record-Setting Year
Saturday, January 7, 2006
Sales of new condominiums reached record levels in the Washington area in 2005, according to a new report, but the supply of new condos has begun to outstrip demand.
That means that would-be condo buyers have many more choices than they had only months ago, according to local real estate agents. Melissa Chen, a real estate agent with District-based Evers & Co., said shoppers are touring as many as 40 units now before choosing, enjoying the luxury of time to consider their options. That's a big change from when there were only a handful of properties available and buyers had to snap them up with little time for reflection, she said.
In 2005, 13,698 new condo units were sold in the area, up from 9,108 in 2004, according to the new report from Delta Associates, an Alexandria-based real estate information firm. Sales were particularly brisk in the fourth quarter of 2005, when 3,541 new condos were sold -- a record, according to the report -- up from 2,394 in the comparable quarter in 2004.
But far more units are being readied for the market, either in new projects or conversions from rental apartments. About 51,400 units were being planned or marketed for delivery within the next three years, Delta Associates found, up from 39,000 three months earlier. It appears some builders are proceeding with projects they have spent years developing, even as the supply of new units rises, in hopes their projects will be more successful than the competition.
"Even with sales at record highs, there is so much product being delivered that the market has a different feel to it," said Gregory H. Leisch, chief executive of Delta Associates.
Leisch said many condo developers are proceeding because they must financially. "They paid so much for the land, and they are so far down the development timetable, they are so far committed, that, practically speaking, they can't stop," he said.
"I think without question the condo market will continue to soften," said Kenneth Wenhold, Virginia and Maryland director for MetroStudy, a Houston-based real estate research firm that specializes in the new-home market. Wenhold said there are five times as many condo units for sale as there were a year ago.
During the housing boom of the past five years, the Washington area market has been among the nation's hottest, with the market for condos particularly superheated.
Condominiums, a form of dense, multi-family housing in which you own your own unit and a share of common areas, generally represent a lower-priced housing option. As single-family dwellings became very expensive during the boom, condos were especially attractive, even in suburban areas. And they were particularly popular with investors.
While the inventory of all housing for sale in the Washington area has risen over the past few months, the change in the formerly hot condo sector has been the most marked.
When the condo market was at its peak a year or so ago, investors flocked to buy units before construction with the intention of flipping them for a profit. Wenhold said he has heard that some of those investors are deciding not to go through with their purchases, giving up their down payments, to avoid being left holding units they cannot sell.
"Contracts are falling through because people are walking away from the closing table," he said. "It's a rare occurrence, but the fact it is happening at all is throwing up red flags."
Wenhold said some builders are likely to be unable to sell out their projects, and he speculated that some will end up in foreclosure.
To help sales, condo developers are offering incentives, such as waiving condo fees for a time or helping with closing costs, Delta Associates found. Some builders are cutting prices as much as $30,000.
"Concessions eat into the bottom line for developers, but have become necessary in some cases to help units move quicker," the study found.
Much of the growth is coming in suburban Maryland, where several new projects are underway in Prince George's County. In the next three years, about 17,400 units will be built in suburban Maryland or converted from rentals into condominiums, by Delta's count. In Hyattsville, for example, Federal Capital Partners is converting a 210-unit mid-rise building into a condominium.
The pace of new condominium development is slowing somewhat in Northern Virginia, although it makes up the biggest share of the region's condo market, with about 24,000 units being readied for sale within the next three years, according to Delta Associates. About 9,900 units are being built or marketed in the District.