But This One Is Special
Saturday, July 15, 2006
It's no secret: After a dizzying five years during which buyers threw ever-larger sums of money at condominium projects, units are languishing on the market and prices have stalled.
"I don't see a whole lot of good reason for buying a place right now," John Delmore, 37, a telecommunications lawyer from Arlington, said last week after a year of on-and-off condo shopping in the District. "I think it's worthwhile to see if prices do come down or if there are more incentives."
It is a sentiment shared these days by more than a few would-be buyers. So why, then, are so many developers still building condos by the thousands? Do they know something that buyers don't? Is the market about to jump again?
The resounding answer from developers large and small is that the economy is strong; the region is adding jobs; and that, basically, their condo projects are so special, so uniquely designed, strategically located or attractively priced that buyers will continue to choose them over the competition.
"It doesn't concern us greatly," said Richard W. Hausler, president of Vienna-based KSI Services Inc., which is advertising about 900 units. "The fundamentals of the market are solid and consistent with what they have been. That's the most important point."
In the Washington area, more than 25,000 new condos are on the market, up from 18,000 a year ago, according to Delta Associates, a real estate information firm in Alexandria. Developers are planning to introduce an additional 26,000 units over the next 36 months. Furthermore, about 9,000 more condos are competing for buyers' attention in the resale market, according to Metropolitan Regional Information Systems Inc., the region's multiple listing service.
With buyers enjoying the luxury of time and choice, developers are offering growing incentives -- condo fee waivers, free kitchen upgrades, help with closing costs -- that average 5.5 percent of the purchase price, according to Delta. That's up from 2.7 percent in the first quarter of this year. When such concessions are taken into consideration, condo prices have actually declined, albeit less than 1 percent, said William Rich, who researches the condo market for Delta.
Most economists agree that the double-digit annual price appreciation for housing of the past five years is over and predict modest increase or flattening of values for the months to come. Delta figures show sales are down from last year's record highs, although they have picked up recently to match the pace seen in 2004. Although the number of unsold units on the market is down slightly from earlier this year, Delta said it does not expect values to increase much for 18 months or so, until even more inventory is burned off.
Dean Baker, co-director of the Center for Economic and Policy Research and a longtime bear about the housing market, said the market could drop by up to 25 percent and disputed the notion that some well-planned condos would escape unscathed.
"Whatever makes the place desirable, it's presumably already reflected in the price," Baker said. "There's always going to be a few that escape relatively unharmed. But virtually everyone is going to be affected to some extent."
Developers typically are dismissing signs of a cooling market as a temporary adjustment period after double-digit price gains prompted a building rush. Several developers on both the high and low ends of the condo market cited their asking price as a key factor that separates their units from all the rest.
District-based Tenacity Group, which focuses on $150,000 to $300,000 condo units, said business has picked up even as some other developers have abandoned projects in the face of paltry sales. In recent weeks, developers of at least 1,700 units in the region have switched plans from condo to rental apartments, said their buildings would remain as rentals or canceled plans altogether.